Start-ups continue to face tax related challenges with some even contending that frequent Government interventions could upset the development of a start-up ecosystem in the country.

The Income Tax department had sent notices to start-ups questioning their valuation and making them liable to pay tax if their valuation were found in excess. This was followed by a recent notice sent by the Ministry of Corporate Affairs asking start-ups their valuation criteria.

Saurabh Srivastava, co-founder, Indian Angel Network, told BusinessLine , “This (tax interventions) is disastrous for the start-up ecosystem.” Sangeetha Gupta, Senior Vice-President, Nasscom, pointed, “I think it will be counterproductive, on one hand trying to create an ecosystem and other hand creating this uncertainty.” “Not especially when these companies are so young and put so much compliance burden on them,” she added.

According to Gupta, it is important to first understand the new business models that are emerging around the Internet company model compared to typical manufacturing and traditional service sector. “You need to look at these with new lens. You need to have a new way of doing this,” she added.

Govt initiatives

The current situation is not conducive for understanding start-ups or their financial position, according to a source who did not want to be named. While there are lot of initiatives from the government, unless all the department involved talk to each other start-ups will keep struggling, the source said. “It will kill lot more start-ups even before they reach their full potential,” the source further added.

Srivastava explained that officials involved should engage with start-ups and angel investors to understand the ecosystem first before taking any measures. “Every country in the world has the same issue. They should learn from them,” he added.

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