Union Budget 2019: IVCA, iSPIRT Demand Better Tax Regime, Nasscom Supports Govt’s 2030 Vision

Following the Interim Budget 2019 announced today (February 1), industry bodies such as the Indian Private Equity and Venture Capital Association (IVCA), non-profit software product think tank iSPIRT, and trading body National Association of Software and Services Companies (NASSCOM) shared their viewpoints in the media.

The IVCA and iSPIRT have placed the hope of the private capital ecosystem on the upcoming Finance Bill, set to be released after the general election (to be held in April-May). NASSCOM, however, believes that the Interim Budget is an attempt to drive much-needed growth in the economy by providing special provisions for underserved communities such as farmers, SMEs, women, and senior citizens.

“The highlight of the budget was the announcement of the National Centre for Artificial Intelligence and the AI portal. This will play a key role for India to accelerate AI development and adoption to the last mile. We look forward to partner with the government for this key initiative,” NASSCOM said.

iSPIRT welcomed the Interim Budget with a focus on the newly-coined phrase — “Digital Village”. It also lauded the direct cash transfer programme for farmers as well as schemes for a healthier India, boosting the adoption of electric vehicles, and rural industrialisation with the use of modern digital technologies. The organisation welcomed these ideas as a part of the “10-dimension vision” of the government for India.

At the same time, Nakul Saxena, director, policy, iSPIRT also highlighted the grim side. “It is a typical Interim Budget by the government…we were hoping that there would be relief on angel tax issue for startups, which unfortunately was not there. This remains a core issue which needs to be addressed completely and properly, so as to enable startups to prosper and ensure that entrepreneurs and investors don’t relocate abroad,” he said.

Demands From Full Budget 2019

The IVCA’s primary demand from the government in the full Budget is to exempt (or reduce to 5%) GST on management services and other expenses incurred by Alternative Investment Funds (AIFs) managed by India-domiciled asset managers.

“This move will ensure more offshore funds to onshore in India and will boost overall Indian Investments via the PE/VC route and generate more employment in India,” said the IVCA.

The IVCA also demanded clarity on applicability of capital gains tax and exemptions for investors. Further, it highlighted its recommendations on angel tax seeking change in Section 56(2) (viib) of the Income Tax Act 1961 and the demand for exemption of startups from Section 68.

“We hope to get a resolution on this irrespective of the Budget. The association and the ecosystem are hopeful that its demands will be picked up in the upcoming Finance Bill post the General Election,” IVCA added.

While speaking with Inc42, Alok Mittal, CEO and cofounder of online lending platform Indifi, echoed the sentiment. “The Budget announcement in relation to MSMEs and startups is welcome. Enabling more digital lending for MSMEs and removing the friction around angel tax would be key enablers to realising their potential,” he said.

Other Key Demands By IVCA 

• Encouraging domestic and foreign capital: Section 56(2) (viib) of the I-T Act should be “dropped” to improve ease of doing business. Also, Don’t use Rule 68 for FDI into startups.
• Capital availability: In order to make alternative investment funds (AIFs) work smoothly, all SEBI-registered Category I & II AIFs should be exempted from Section 56(2) (viib). Also, the government should encourage more fund of funds as well as state and central ministry level incubation funds.
• Angel ecosystem: According to the IVCA, angels are the ones who give birth to startups. “Encourage them, give them incentives for investing in startups like the UK mode, no Sec 56 (2) (viib) / 11 UA queries,” said the IVCA. The PAN should suffice for angel investors while startups claim tax benefits or income tax related issues. Section 42 says if angel groups send the bus plan of the startup to more than 200 members, it amounts to a public issue. “All angel groups and platforms are impacted by this,” said the IVCA.

The Wait Begins For The Full Budget

In line with the “10 dimensions” of the government’s 2030 vision, NASSCOM believes that there must be a national initiative on reskilling to create future-ready talent.

The IVCA further proposed:

• Taxation on ESOPs on sale instead of at the time of issue of shares
• The need to bring tax parity on capital gains for private exits with public markets
• Change in ownership structure should not result in tax losses being ineligible for carrying forward
• Scrapping of restrictions on FDI in ecommerce, as foreign capital is 95% of all the private equity and venture capital money in India

Mitesh Shah, head of finance, BookMyShow, said, “We appreciate the Budget’s recognition of India’s startup ecosystem’s contribution to the economy and the creation of a digital India in Vision 2030 is indicative of the long road ahead for this ecosystem. The Budget, however, did not offer clarity on issues surrounding the angel tax, much to the dismay of the industry’s expectations.”

Will the upcoming full Budget 2019 be able to address the concerns of these industry bodies? We will know in a few months time.
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