In a welcome move, the government of India under Narendra Modi is all set to bring out a plan to support young entrepreneurs, looking to raise seed and angel investment.
Much talked about campaign, ‘Startup India, Stand Up’ is set to start from January 16, but the government is looking to take decisions even before the campaign starts. The government has decided to scrap off the taxes present on raising seed and angel investment from Indian investors, in the upcoming union budget. This move will help all the individual financiers as well as the financial institutions, who are looking to support the Indian startup industry.
A few highlights revealed by a government official are listed below
- Majority of Indian startups seek foreign investment because of indefinite taxes on domestic fund raises.
- Till now, the investment was calculated at the time it was raised and not at the time when Startup made profits. Which considered the investment as income and the high taxation rates discouraged the startup entrepreneurs to raise the money from domestic angel investors.
- Till now, the tax on the personal investment by a domestic investor was calculated at the rate of highest marginal personal income tax (33%), however, the investment coming from foreign funds or corporates attracted a tax of around 10%.
- The higher amount of tax was only for the domestic investors till now, the policy is to encourage the domestic investment, so the government is taking some effective decisions to support startups and investors.
According to a few people working with the Startup India initiative, the policies in India are really not favorable to the startups till now. in 2015, Startups in India raised a total sum of around $9 Billion. There are many difficulties in raising capital as well as in doing business once the startups scale. That is one of the factors which encourages the startups entrepreneurs to move out of the country. In total, over 65% of the successful indian startups has moved to countries like Singapore where the taxation is flexible for startups and growing businesses.
Talking on the development, an official from CII stated that in the upcoming budget, the government is going to address the taxation on the investment raised by startups. The income made by the angel investors from such investments is going to have the same taxation rates for a while, before the government comes out with a separate policy to address that.
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