Angel Investors needed for Startup India
India has an incredibly low proportion of angel investors in relation to its population size. India needs many more angel and early stage investors for the startup ecosystem to get into full swing to create jobs and value.
Times of India reports that the ministry of communications and information technology has proposed tax exemptions on stock options given to employees by startups and on capital gains made from investing in new ventures, moves that could have a catalytic effect on such companies in the event the measures are adopted. The proposals have been sent to the finance ministry as part of suggestions for next year's budget and are aimed at promoting the startup ecosystem, in line with the initiative that Prime Minister Narendra Modi announced in his Independence Day speech.
Some "70-80% of startups in the country are tech related and we need to find a way to encourage private capital and long-term investment in Indian tech startups," said an official. The department of IT that's part of the ministry has also proposed that such exemptions on employee stock options (ESOPs) be extended to directors as well. Startups are raising significant amounts of capital, especially at the early stage level, but they continue to struggle with opaque regulatory demands.
According to the current tax laws, angel investors in startups have to pay 33% short-term capital gains tax on all investments in Indian startups. Long-term capital gains tax, involving a holding period of three years, is 20%. This contrasts with stock market investments, on which there is no long-term capital gains tax. Short-term gains are taxed at 15% within a holding period of one year. India's rapidly growing angel investor community has been calling for parity for some time, asking regulators authorities to align the startup Esop policy with that of the stock markets.