ClearTax was recognised as one of the 42 most innovative Indian startups of 2018 by Inc42’s 42Next list.
It was a particularly hot day in Delhi, during the summer of 2010. Raja Ram Gupta – a partner at an accounting firm – was having a deep conversation with his son, Archit Gupta, who was then an engineer at Data Domain in the US and was visiting his parents. The conversation was about the complexities of the government’s recently introduced online tax filing portal.
Archit learned that not only an average taxpayer but also professionals like his father struggled to find their way around the portal. The issues were deep-rooted, such as Microsoft Excel-based tools, XML formats, etc, and could really use a solution.
Discovering a lacuna derived business opportunity here, Gupta’s entrepreneurial spirit kicked in. Within six months, on the July 19, 2011, he launched ClearTax, a fintech startup that offers solutions for income tax filing online. He, however, had a mere 11 days before the deadline for tax filing ended that year. With no marketing budget in his arsenal, Gupta simply relied on emails to friends and acquaintances to try out the new product.
To his surprise, within two hours of the website going live, ClearTax registered its first user. Eventually, in those 11 days, ClearTax had almost 1,000 people filing taxes. With this early momentum, the company looked at corporates, SMEs and chartered accountancy firms for filing corporate tax returns.
It was at a hackathon that Gupta hosted for fintech giant Paytm in September 2011 where he met Srivatsan Chari and Ankit Solanki. The meeting struck a chord with him and he offered both positions at ClearTax. The team was working really hard and towards the evolution of ClearTax and their effort was vindicated in the rapidly-burgeoning user base.
Steering Clear Of Taxing Obstacles
After completing his Btech from IIT Guwahati, Gupta moved to the US to pursue his Masters in Computer Science from the University of Wisconsin-Madison. He then went on to work as an Engineer at Data Domain. Therefore, moving from the realm of Computer Science to tax filing and finance technology was a major shift for Gupta. This, coupled with his moving to India to start a brand new company in a domain he was unfamiliar with, was a huge challenge for him.
“It was a long and lonely journey before recognition came to ClearTax. I had to survive three years with the savings that I had accumulated from working in Silicon Valley for three years,” says Gupta.
Although the initial performance of the company offered the much-needed confidence assurance to the team that they have created something of value. However, the venture capitalists did not see value in an Indian product that was not meant for US clients. An entirely exclusive Indian product failed to attract the venture capitalists, Gupta claims.
He spent many sleepless nights and difficult weekends pondering upon how to realise his long-term vision and goals for ClearTax without money. Moreover, the constant reminders from his friends over at the Silicon Valley regarding the lucrative opportunities available for him if he moved back to the US, weren’t helping his anxiety. “As an entrepreneur, it became important to ignore all the noise around, especially when you are not doing well. I and my family found it hard to make even relatives understand that I was building a business,” states Gupta.
But, there was light at the end of the tunnel. During the summer of 2014, everything changed for ClearTax.
The Y Combinator Boost For ClearTax
In 2014, the renowned Silicon Valley-based startup accelerator Y Combinator selected ClearTax to be part of its accelerator programme. Since then, there has been no looking back for the team. Not only were they the fifth Indian startup to be funded by YCombinator, but it was also the accelerator’s first startup that focused exclusively on the Indian market.
The YC backing proved to be a massive boost to ClearTax’s growth trajectory. ClearTax received its series B round of funding of $50 Mn (INR 400 Cr) from Composite Capital after being in the business for over seven years. The company has previously raised a combination of a little over $15 Mn in a Series A round and angel funding. The investors include Y Combinator, SAIF Partners, Founders’ Fund, Sequoia Capital and PayPal co-founder Max Levchin.
Apart from the financial gains, the entire YC experience also helped the team garner invaluable lessons that helped mould the present-day ClearTax. “A key principle Y Combinator taught us is to build something that people want. At ClearTax we always work backwards from customer needs. We have a strong customer insights team continuously working to drive meaningful insights about customer pain points,” says Gupta.
“Another important principle taught to us during YC days was “Launch now”. Sometimes businesses put too much effort into finding the perfect name for the product or perfect solution to a problem. YC mentors always asked us to focus on launching an idea in the market. Because the best way to learn is to test the product in the market,” he adds.
Modus Operandi And Revenue Streams
ClearTax offers software that helps individuals, businesses, organisations, and chartered accountants with their tax-related and compliance requirements through various products.
- Tax filing – ClearTax is a product designed for individuals to prepare and file their income tax returns in a fast and efficient manner while maximizing their tax deductions.
- TaxCloud – It is a web and mobile-based ITR and e-TDS Software which helps CA firms & enterprises across India manage their practice. The software help CAs check the filing status of their clients anytime and from anywhere. It has features like automatic selection of the correct ITR form. The software will also import the TDS, TCS, Self-paid tax entries directly from the form 26 AS, thereby eliminating any manual data entry. It allows direct e-filing with digital signatures and easy revisions.
- ClearTax GST – According to the company, its ClearTax GST Software is India’s first ready-to-use GST-compliant billing and filing solution.
- ClearTax Invest – ClearTax Invest offers a mutual fund investment platform for wealth generation and tax saving. Customers can choose from various handpicked investment plans along with complete guidance on mutual funds.
- CA & legal services – ClearTax chartered accountancy and legal services offer a marketplace platform for financial & compliance services, catering to 300K businesses/individuals.
According to the company, “When the government announced the massive indirect tax reform with the introduction of GST, we realised that the businesses were unsure of its implications and compliance requirements. We decided to build a product to simplify GST for businesses. The product quickly became the largest GST solution in India with over 80K businesses adopting it and 8% of India’s GST returns being filed through it.”
ClearTax provides a complete suite of GST compliance solutions which also includes e-way bill for movement of goods, allowing companies to generate e-way bills and goods transporters benefit from a reliable mechanism of filing invoices and calculating tax liabilities. This solution is largely beneficial for large and mid-sized companies, with whom ClearTax works on an annual fee model and claims to have a user-retention rate of 90%.
“Other than GST, we also generate revenue in our managed services business wherein businesses can connect with CAs for compliance, company registration, and other services for a fixed fee,” states Gupta. However, the company declined to comment on its revenue projections for FY 2019-20.
Clear The Path, ClearTax Coming Through!
Currently, ClearTax is used by over 5 Mn Indian taxpayers to e-file their tax returns. As per the company, this makes ClearTax India’s largest player in the space. It claims that the ClearTax GST software is used by 6 Lakh businesses, 60K CAs and tax professionals, and over 1000 large enterprises.
As of March 2019, ClearTax had a total employee strength of over 650. It plans to double its 125+ product and engineering team in the next 12 months. Last year, ClearTax was recognised as one of the 42 most innovative Indian startups of 2018 by Inc42’s 42Next list.
Keeping in line with the ever-increasing smartphone and mobile internet penetration in India, the company is working towards becoming a mobile-first company. In the consumer businesses, It is expanding its invest product with a mobile extension that will further facilitate taxpayers with tax filing, investing and other features.
In the B2B space, the company is building a new GST product. “Given the new GST is suggesting changes wherein companies are expected to face cash flow challenges with ITC (Input Tax Credit) dependent on vendor compliance. Our new GST product lets companies match their purchase data effortlessly and even follow-up with suppliers to ensure timely compliance,” says Gupta.
Additionally, the company is also planning to introduce products for the SME segment.
Standard Deduction Of Competition
According to the statistics released on the Income Tax Department’s e-filing website, income tax e-filings in FY 2018-19 dropped by more than 6.6 lakh; a rare occurrence in the recent history of tax filings. The number dropped to 6.68 Cr in FY2019, down from 6.74 Cr in FY 2017-18. However, the number of registered e-filing users has increased by 15% in one year — from 7.36 Cr in March 2018 to 8.45 Cr in March this year.
The market is also getting increasingly saturated with various portals and platforms that facilitate the tax filing process. ClearTax considers the government portal as its most potent competitor when it comes to ITR filing. H&R Block and Webtel are some of its other significant competitors in the tax filing space. In the GST space, ClearTax competes with Cygnet, Tally, and computax. Its mutual fund platform competes with Paytm Money, ETMONEY, Groww, Zerodha and others.
Gupta, however, remains unfazed by his competitors. He believes ClearTax’s exceptional UI and intuitive software sets it apart from its competitors. “We not only offer services but also educate our customers, we employ tools such AI aided investment planner which will help guide them to a fiscally secure future,” says Gupta.
According to him, educating the people regarding the importance of tax compliance would help change the preconceived notion that filing taxes is a complex process. “Tax compliance is a major growth factor for the economy and a big part of every taxpayer’s life. It shouldn’t have to be dreaded – one needs to know what they are paying and why, and the recourse in case something goes wrong.”