Prominent startup industry bodies including Indian Angel Network, NASSCOM, Indian Venture Capital Association, TiE and Mumbai Angels have jointly appealed to the government to review taxation policies that adversely impact the startup ecosystem.

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Startup Bodies Seek Exemption in Tax
Policies
Prominent startup industry bodies including Indian Angel
Network, NASSCOM, Indian Venture Capital Association, TiE and
Mumbai Angels have jointly appealed to the government to
review taxation policies that adversely impact the startup
ecosystem.
#DigitalErra Thought Corner
"Startups have been facing practical difficulties on the taxation
front following the blanket applicability of certain sections. We
have made a representation to the government on January 16
regarding this," Saurabh Srivastava, prominent venture capitalist,
and co-founder of Indian Angel Network and told reporters here.
What does Section 56 say?

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Section 56 of the Income Tax Act presently states that money
paid by investors for shares in a private Indian company will be
subject to 33% tax. Strategic investments are generally long-
sighted ones and taxing a hefty amount at the initial stage could
make investors think twice before investing.
"Normally, valuations in the angel round of funding are based on
long-term expectations of the startup succeeding. Taxing these
early stage investments is detrimental to their performance," said
Mr. Srivastava.
What are the expectations?
 Investors would love more benefits for themselves. A
broader section should be carved-out exclusively for them
in Section 56 which will take care of their needs.
 Startups have also appealed that the government should
also consider eliminating Minimum Alternate Tax for
startups, which are DIPP certified.
 Streamlined laws to encourage startup ecosystem.
An Economic Survey for 2015-16 says the Indian venture capital
backed companies topped $12 billion across more than 1,220
deals in the past two years.
"The size and importance of such funding have been huge in the
past few years and the government has done well to recognize
that. It is important that they now ensure streamlined laws to
encourage the ecosystem," Rajat Tandon, president of Indian
Private Equity and Venture Capital Association said.
Support from NASSCOM

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NASSCOM had previously said that direct and indirect taxes hurt
startups and the industry body had asked for tax exemptions for
startups. Policy regulations like ease of compliance, reliance on
self-certification instead of audits, tax exemptions were some of
the suggestions made by NASSCOM.
Conclusion
It has been a while since startup bodies have been lobbying
around for flexible taxation norms. The laws regarding capital
gains should be simplified further to boost investment among
startups. In the upcoming budget, government should consider
the recommendations to relax taxes including minimum
alternative tax and angel tax that hurt growth of startups.