Budget 2019: Startups rue lack of clarity on key issues like angel tax

India's startup ecosystem said it was disappointed by the lack of a solution to contentious issues plaguing the sector such as the angel tax, in the Union Budget.

Investors and entrepreneurs said overall sentiment across the sector remained fairly subdued especially as the industry is also grappling with the new foreign direct investment rules for the e-commerce sector that came into force on February 1.

A long-time demand of startups and investors to do away with Section 56 of the I-T Act, the so-called angel tax issue had picked up steam late last year after startups began receiving notices from the I-T department.

“While there are a number of issues that the industry has brought up, like angel tax and tax parity in private and public exits, they (the government) have not done anything to encourage the sector or fix the issues,” said Rehan Yar Khan, Managing Partner at Orios Venture Partners, an investor in startups like Pharmeasy and Pretty Secrets.

Entrepreneurs and those engaged in active discussions with the Department for Promotion of Industry and Internal Trade (DIPP) and other government departments said they had little hope of the issues being resolved given that it was only an interim budget. But the government’s move to address topics such as income tax slabs and farmer payouts, added to the impression that the problems of startups was not high on the list for the government to solve.

“They need to solve the problem once and for all and the industry was expecting something and it never happened. It’s a disappointment,” said V Balakrishnan, former member of the board at Infosys and Chairman of Exfinity Ventures, who was of the view that the government’s new guidelines for FDI in e-commerce focused solely on protecting a vote bank of small traders and did not benefit consumers.

While admitting that there were also positives from the 2019 budget, entrepreneurs said it was still a lost opportunity by the government to fix some of the important issues.

“The budget lacked a few expected measures for the industry, such as higher tax exemptions for the middle class and small businesses, and the abolition of angel tax for start-ups. We do, however, encourage the initiatives towards creating a level-playing field for MSMEs, starting from the proposal to change DIPP to Department of Industries and Internal Trade, to providing a 2% rebate on loans upto Rs.1 crore for MSMEs,” said Radhika Aggarwal, chief business officer at Shopclues.