Finance Minister Mr. Arun Jaitley on 1st February 2018 while presenting the Union Budget 2018-2019 said that the Government is steadfast to take additional measures to further strengthen and support angel and venture capital (VC) investors operations in India.
Mr. Jaitley also said that the VC funds and angel investors need an innovative and special development and a regulatory regime for growth. Adding to which he further said, “We have taken a number of policy decisions, including launching of Startup India programme, building a very robust alternative investment regime in the country and rolling out a taxation regime designed for the special nature of VC funds and angel investors,”.
However, the Investors have been expecting a relaxation in the angel tax levied on angel investors who put in their money across early stage start-ups which is considered a high investment risk. Presently, funds from angels are taxed at over 30% if it is more than the fair market value (FMV).
Angel Tax Clause was introduced in Budget 2012, this clause in Section 56 of the Income Tax Act explicitly states that all startups are liable to pay taxes on money invested as capital, including on angel funds.
He further said that the Government’s main focus is to have better regulation to govern angel and VC investors by fixing regulatory issues to reinforce the environment for angel investors growth and successful operation of the alternative investment fund in India.
The Finance Minister emphasized the importance of using Financial Technology (FinTech or fintech). FinTech is the application of technology by the financial industry to improve financial activities. FinTech will help the growth of micro, small and medium enterprises (MSMEs). He further said, “A group in ministry of finance is examining the policy and the institutional development measures needed for creating the right environment in the fintech companies to grow in India,”.
Financial technology companies consist of both start-ups and established financial and technology companies trying to replace or enhance the usage of financial services provided by existing financial companies. The use of smartphones for mobile, banking and investing services are examples of technologies aiming to make financial services more accessible to the general public.
Hence, the Government’s measures to help the expansion of financial technology start-ups will make it easier for MSMEs to access capital.