An Ecosystem that is more Favourable to Start-ups

Innovation occurs when a passion is fed by money. India must quit becoming its own greatest enemy if it is to become the world’s start-up capital.

The government acknowledges the tremendous value added that can come from start-ups, but first-time business owners have a heavy compliance burden. During its first year, a start-up using an office space or shared space must register with at least six different regulators and submit a least of 18 returns and a top of 69 returns. A novice entrepreneur must first persuade investors of the viability of the project before putting in a lot of effort to attain the dream.

The application of the Angel Tax is a pain in the neck at this stage of capital raising since it was implemented in 2012. The criteria for exemptions grew more complicated and muddled over time, despite government changes to the tax’s coverage throughout the years. As much at 30% of a founder’s funding may have been demanded as tax, according to many entrepreneurs. Finally, on August 23, 2019, the Finance Minister declared that start-ups registered with the DPIIT will not be subject to the Angel Tax. 

Entrepreneurs and their funders should be able to enter and depart an ecosystem with ease in order for it to function effectively. Entities require more than two years to close when commercial operations are stopped; this process includes obtaining no-objection certifications from all authorities as well as creditors, relinquishing all registrations obtained during operations, shutting all bank accounts, etc. A single window approach that streamlines the closing procedure would be really beneficial. Keep in mind that 90% of businesses fail within their first 5 years, and among the major causes of this is the onerous regulatory burden that slows them down.

After a few years, angel investors also frequently change careers. There are two potential actions that might be taken to promote free capital flow. First off, returns from unlisted start-up ventures are currently subject to a 20% long-term capital gains tax, while gains from traded stock investments are only subject to a 10% tax.

By levelling the playing field and lowering the tax on profits when selling a start-up investment, investors will be more willing to take on the risk during the start-early up’s years. Second, the government might set up an investor matching platform on StartupIndia Hub that would link an investor looking to exit including an investor seeking a lucrative venture to invest in. When an investor decides to leave, an entrepreneur frequently has to devote time and resources finding a replacement. If this is made easier through the gateway, the entrepreneur may focus on the main business.

The administration should bear in mind that this sector is especially vulnerable to regulatory uncertainty, ambiguity, and rapid changes while formulating policy and compliance. More initiatives to make conducting business easier will encourage young entrepreneurs to innovate.