Startups’ Body IndiaTech.org Seeks Changes In Direct, Indirect Tax Regimes In FY24 Budget

Industry body IndiaTech.org, which represents the country’s consumer internet startups, has written to the Finance Ministry highlighting the issues faced by startups and seeking changes in the direct and indirect tax regimes in Budget 2023-24.

From asking the government to slash Goods and Services Taxes (GST) for certain services to seeking revision of Tax Deducted at Source (TDS) charges in industries like ecommerce, IndiaTech.org has made a gamut of requests ahead of the Budget.

Finance Minister Nirmala Sitharaman is likely to present the Budget for the next fiscal year on February 1, 2023.

Ola, MakeMyTrip, Steadview Capital, Zomato, Meesho, Policybazaar, RedBus, WazirX, CoinDCX, CoinSwitch, Zepto, and Nykaa are among the prominent members of IndiaTech.org. 

In its submission, the industry body pointed out that both central and state officials are empowered to investigate companies on GST liabilities under the CGST Act and respective state GST Acts. They also claim and take action against erring entities without bothering about jurisdiction, subjecting one entity to multiple investigations on the same issues from Central and state GST authorities, IndiaTech.org said.

The industry body, therefore, recommended the government to make suitable amendments to the law and revise guidelines to ensure that there is a single interface for all assessees on the basis of turnover or any other basis, which should be followed by all GST authorities.

IndiaTech.org also pointed out that as per the CGST Act, ecommerce operators, which do not have a physical presence in a taxable territory, have to pay tax in that taxable territory. It said that this makes it mandatory for ecommerce operators to occupy an office space in each state/ union territory, which burdens them with additional administrative costs.

“In order to reduce additional cost on e-commerce operator, it is suggested that relaxation for additional office space even in absence of physical presence in that taxable territory (i.e. state/UT) should also be extended for compliance undertaken u/s 9(5) of CGST Act,” IndiaTech.org said in its submission.

It also proposed a reduction in the GST rate for marriage venues/ mandap to 5% from 18%.

“The 18% GST on venue booking is significantly on the higher side. This is affecting startups that are emerging in the matrimonial space that are working to get the entire marriage ecosystem online and thereby granting greater transparency. Due to a high GST rate many in this offline business are not desirous of partnering with startups in this space leading to a grey market economy,” the industry body said.

While the GST law paved the way for seamless availability of credits without any distinction between goods or services, IndiaTech.org said that many newly established entities face challenges of accumulated input tax credit in the initial years because of certain unique peculiarities. 

In order to enhance liquidity and unblock accumulated input tax credit of newly established entities, the industry body suggested that the government should enable provisions like cross utilisation of CGST and IGST credit across group GST registrations and provide relaxation for availing input tax credits pertaining to goods/services procured for warehousing, logistics and related support services, among others.

Special Focus On Emerging Tech Sectors

Virtual digital assets (VDAs) such as crypto tokens also found a mention in the industry body’s recommendation to the government. 

The Section 74 of the Income-tax Act, 1961 provides for setting off and carrying forward losses incurred under the head ‘Capital Gain’ for a period of eight assessment years. Similar provisions must be enacted for the losses incurred from VDA, the industry body said in its note.

This is needed to ensure that customers/ users are not forced out of KYC-enabled Indian trading platforms to international exchanges, which would result in a loss of tax revenue to the exchequer, and also go against the government’s objective of tracking and tracing VDA transactions, it said.

Besides, IndiaTrade.org said that 1% TDS on VDA transactions like crypto tokens and non-fungible tokens (NFTs) of more than INR 10,000 has led to several Indian investors and crypto startups moving to foreign exchanges to avoid paying taxes. The industry body requested the government to come out with a clarification on whether such TDS applies to foreign exchanges under section 194S. If not, they need to be included so that it creates a level-playing field for the startups domiciled in India and outside.

“Since the primary intention was track and trace we recommend that the rate of TDS be deducted from 1% to 0.01% through an amendment to Section 194S,” IndiaTech.org added.

On the other hand, the industry body also recommended certain changes in tax provisions for electric vehicles (EVs). 

It said that the government must reinstate its earlier regime allowing weighted tax deductions to companies up to 200% of their certified R&D spends in order to boost R&D expenses.

“The Government of India has set an ambitious target for EVs by 2030. To help achieve the targets, the government should also promote converting existing ICE vehicles to EVs. EV retrofitting is an affordable solution as it will save the manufacturing process,” it said.

Incentives could take the form of GST cuts and subsidy grants comparable to FAME II on retro-fitment kits, waiver of registration charges for retro-fitted vehicles, and provision of relevant financing options, IndiaTech.org added.