The Indian government must simplify the tax structure and reduce the burden for startups in the upcoming budget to help budding entrepreneurs establish their fledgling ventures, angel investor Sunil Goyal has said.
Goyal, founder and CEO of the Gurgaon-based YourNest angel fund that has a corpus of Rs 90 crore ($13.5 million) and has invested in about 15 technology startups, also said that startups need clarity and consistency in taxation.
"In initial phases startups don't have revenues but, in the process of creating something new, they have to manage expenses of a host of things like office rents, consultants, sales and marketing and many more. Each of these services attract service tax at 14.5 per cent," Goyal told Techcircle.in.
Goyal said that the Rs 10 lakh limit of exemption from the service tax should be raised to make it easier for entrepreneurs to groom their startups.
He also said that the three-year income tax exemption is a good move by the government but startups must be exempted from tax deduction at source.
"If we get this, whatever revenue a company creates, there won't be any TDS deduction but cash flow will be with the entity and they will deploy it back, higher some more talent and build their startup. This is what we need in the first three years," he said.
Goyal also said that the government must make it easier for startups to raise funding. Talking about angel tax that startups need to pay when they raise funds from investors, he said that almost every venture under his portfolio has received a government notice to pay the levy.
He said that entrepreneurs are focused on building a business and getting customers, but they have to compile documentation from each investor and then go back to the income tax officer. "Ultimately, after five-six meetings with the tax officer, he is exempted, but it causes a lot of inconvenience," Goyal said and added that it is important to frame some guidelines in place to resolve the issue.