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Startups may enjoy excise duty, service tax waiver for a specified period
February, 05th 2015

The union government is in the process of gift-wrapping a bonanza for startups with proposals to exempt them from service tax and excise duties for a specified period.

An inter-ministerial group is considering a one-stop registration service for all startups that will make also them eligible for government grants. The group, chaired by Jayant Sinha who is minister of state for finance, includes ministries of science and technology, corporate affairs and the department of electronics and IT.

Harkesh Mittal, secretary in the department of science and technology, confirmed talks but declined to share specifics of the proposals under consideration. "The proposal is in its very early stages," he said.

Startups which register under the department of science and technology and are certified as 'bonafide' will then be eligible for tax exemptions - both service and excise-until their revenues reach a certain threshold, according to sources privy with the talks. They will also qualify to receive grants of up to .`10 crore from the DST.

According to World Bank, India is currently ranked at 134 in the ease of doing business, a ranking the Modi government is aiming to change.

Nasscom has also proposed a three year moratorium to the government on quarterly regulatory filings and taxes so that India's young companies can scale up fast. "Service tax exemption is a much needed proposition.

But sops should be more broad-based as majority of successful start-ups are not registered with DST affiliated incubators," said Ravi Gururaj, chairman at Nasscom Product Council.

This aggressive policy push for start-ups, in the run-up to the Union Budget 2015, is coming at a time when India is in the midst of an unprecedented entrepreneurial boom. Venture capitalists nearly doubled their investments in the country last year, putting in an all-time high of $2.1 billion in Indian startups.

The government seems eager to play its part. In the interim budget announced by finance minister Arun Jaitley in July 2014, the government announced an .`10,000 crore fund for start-ups. The latest proposals under consideration, are targeted at more than just financial support, and extend to simplifying process of starting up as well as running a business.

"Technology startups in India are burdened by bad regulations," said Sharad Sharma, founder of product startup think tank iSpirt.

"It has led to flight of many good companies overseas. Hopefully we will see concrete action in the Budget," he said.

At present, technology startups have to pay service tax at the rate of 12.36%- similar to what large corporates are charged, besides also having to pay excise and income tax.

"Service tax exemption for startups, will save both time and cost of compliance," said Sachin Chaudhary, CEO and founder, Medical Second Opinion, an online aggregator medical doctors in India. With the one page annual filing, tech businesses will get more time to accelerate and scale," People with knowledge of the proposals being discussed by the interministerial group said, there are moves to also ease the process of shutting down failed startups. " Certified' startups will have the ability to shutdown in a day, with submission of a single page form,' said one source.

Every day nearly over two startups are set up in India. Industry members estimate that for every hundred new ventures, at least eighty fail.

Currently, it takes a private limited company about 18-36 months to wind up completely. Procedure involves taking a no-objection certificate from each creditor, getting approval of all directors, including investors and submitting a court petition.

However a large number of technology startups own assets such as an intellectual property or a website, the ministerial group is now discussing new rules that will help them shut down speedily, if required.

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