Optimal Tax Policy For Startups Will Boost Private Investments: Economic Survey

The annual economic survey for 2018-19, has called for an optimal tax policy for startups so that it can aid the innovative investments in the Indian economy. The survey noted that growth in the new economy cannot be fostered without an ecosystem that rewards innovation and entrepreneurship.

Recognising the fact that startups and innovative ventures face significantly greater uncertainty than traditional ‘brick-and-mortar’ firms. “Yet, policy ambiguities that create collateral damage for genuine risk-takers can affect investments by dampening the animal spirits in the economy,” it added. 

Commenting on the launch of economic survey, Finance Minister Niramala Sitharaman said, “The survey lays down a strategy to achieve the vision of an inclusive India by 2022 and a $5 Tn economy by 2024-25. It aims to facilitate the creation of self-sustaining virtuous cycle which spurs investment and thereby growth.”  

Further, the survey also noted that continuing the creation of an ecosystem for private investment, especially in the new economy, is critical to enable the virtuous cycle of investment, demand, exports, growth and jobs. 

Earlier this week, Infosys founder Narayan Murthy had also said that creating a free business environment for startups is the first step to ensure the prosperity of India. Murthy had reportedly said that certain reforms have been brought at the national level, but at the state level there still exists many bureaucratic hassles. He had appealed the state governments to bring in more reforms. 

Govt’s Attempts At Simplifying Startups’ Tax Policies 

Earlier at a startup pitching event, Ramesh Abhishek, secretary, Department for Promotion of Industry and Internal Trade (DPIIT) had also said that the government is committed to simplifying the business ecosystem to support the growth of startups in India. 

Also, the Central Board of Direct Taxes has recently exempted 702 startups under Section 56 (2) (vii) of the Income Tax Act, 1961 (also known as Angel Tax). The minister of commerce and industry Piyush Goyal had informed the parliament that these startups had been exempted till June 21. 

Further, in May, DPIIT was reported to have started discussions with the finance ministry to tax Employee Stock Ownership Plan (ESOP) options only once at the time of sale. The finance ministry is expected to explore this when it prepare proposals for the next financial budget.

Also, last week, Startup India had announced that an inter-ministerial board will be set up for reviewing startups’ applications for tax exemption under section 80-IAC of IT Act. 

Prior to this In 2016, the government had announced a 100% tax deduction for any three consecutive years. The startups which did not have a total turnover of INR 25 Cr and was involved in innovation and development of new products were eligible for this benefit. They were also allowed to choose the three-year term during the first seven years.

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