Also in this letter:
■ ETtech interview with HCLTech’s Shiv Nadar
■ Edtech, gaming firms concerned over Data Bill’s age gating
■ Manohar Kamath, Myntra’s private label head, resigns
Startups want angel tax to be scrapped or exemption limit raised
India’s startup industry is lobbying the finance ministry to either scrap the so-called angel tax or at least increase its Rs 25-crore threshold for exemption, claiming that only a small percentage of startups in the country will be able to meet that limit.
What is the rule? During this year’s Union Budget, the government proposed an amendment to the angel tax provision or section 56(2) (viib) of the Income Tax Act. Under this, if a closely held company issues shares at a price that exceeds the fair market value, computed in accordance with the prescribed methodology, the difference is to be taxed as income from other sources.
Tell me more: The tax isn’t levied if the aggregate paid-up share capital and share premium of the startup after the issue of shares doesn’t exceed Rs 25 crore. This limit was last revised in 2019 when it was raised from Rs 10 crore.
Also read | Budget 2023: scope of angel tax expanded, to cover foreign funding
Why the rule? The provision was put in place as an anti-evasion measure to prevent money laundering through inflated valuations but has impacted startup and angel investments, hence the term angel tax. The provision does not cover startups registered with DPIIT, provided their total investment, including funding from angel investors, does not exceed Rs 25 crore.
Also read | Exclusive: Valuation rules to be scanned for Angel Tax on foreign Investments
The bottom line: According to the rule, any premium paid by an investor above the fair market value (FMV) of an unlisted company is subject to a 20% tax. Market participants say to avoid this tax, startups will now be forced to maintain a more linear valuation path and ensure there are no large swings in valuations between different rounds of funding.
Also read | ETtech Explainer: Has the Budget 2023-24 resurrected ‘angel tax’?
Look into ADIF plaints against Google’s billing system: Delhi HC to CCI
The Delhi High Court on Monday ordered the Competition Commission of India (CCI) to take up complaints filed by the Alliance of Digital India Foundation (ADIF), a group representing Indian startups, against Google’s new in-app billing policy by April 26.
ET had reported on April 5 that the tech industry body had filed complaints with the antitrust watchdog asking it to review the user choice billing (UCB) policy.
Quorum issue: The arguments by the parties were primarily around whether it was within the ambit of the law for CCI to take the complaints up given that it has only two members, and is therefore lacking a quorum. Following submissions by the parties, the court reserved its judgment last Wednesday.
ADIF’s complaints: In its petition, the industry body had urged the court to ask the CCI to look into its complaints against Google’s UCB system urgently or put the new policy under abeyance pending a review, alleging anti-competitive conduct by Google through the policy.
What is Google’s UCB? Under this policy, app developers need to pay a commission of 11-26% to the US-based tech giant. ADIF made a representation to the CCI on this issue, in which it urged the competition regulator to “look into these abusive dominance practices of Google on an urgent basis”.
ET Ecommerce Index
We’ve launched three indices – ET Ecommerce, ET Ecommerce Profitable, and ET Ecommerce Non-Profitable – to track the performance of recently listed tech firms. Here’s how they’ve fared so far.
ETtech Interview: India needs to create products with its own IPs: HCLTech’s Shiv Nadar
HCLTech’s Shiv Nadar pioneered the “startup and innovation” culture when he introduced microcomputers in 1978. Awarded the ET Corporate Excellence Award for Lifetime Achievement 2022-23, Nadar spoke to ET about what the Indian technology industry must do to strengthen its product capabilities.
Here are the key takeaways
On India as a tech powerhouse: “We should create many more products (for ourselves). The products that we create, and their IP belong to the clients. These products are sold throughout the world. Even if it is created by us, clients have the IP and patents, and the selling is done through the client’s organisation. We (as a country and as an industry) need to have more products where we own IPs and build global distribution expertise.”
Advice to tech CEOs: “Stay the course. It is important for business leaders to maintain a positive mindset during uncertain times. Stay focused on your goals, stay motivated, and remain optimistic about the future.”
On startups:“Focus on profitability. As with any business, when I started HCL, the organisation faced its share of ups and downs. In my experience, it is important to keep your eye on the long-term vision and stay nimble, rather than being distracted by day-to-day wins and losses.”
Also read | Tata Communications a beneficiary of cautious sentiment in global markets: CEO
Data Bill: Age gating at 18 years sparks concerns for edtech, gaming
The government, in the upcoming Digital Personal Data Protection Bill, 2022, has decided to define those under the age of 18 as children — a move that has left edtech, gaming, and social media firms worried.
What are the concerns? Under the new rules, experts said that a significant portion of the population must go through multiple hoops to access the internet. Sources told us that this might adversely impact the edtech and gaming sectors since they will be forced to take explicit consent from their users.
Industry experts said that keeping the age of consent at 18 in India, as opposed to the international level of 16 years, will further the digital divide prevalent in the country and hamper the poor’s access to technology and information.
Expert view: Cyber expert Prasanto K Roy told ET that parents may not always be able to give informed consent as they may not understand what they are consenting to. These include families from lower socio-economic backgrounds, he said.
Unacademy’s profitability: Edtech startup Unacademy, which has been cutting its workforce for a year across multiple rounds of layoffs, aims to hit Ebdita-level (earnings, depreciation and amortisation) profitability by this month, according to an internal memo sent on Monday to employees by chief executive Gaurav Munjal. The projections made by the company are only for April and not for the full year.
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Myntra private label head Manohar Kamath quits
Manohar Kamath, private label chief of Flipkart-subsidiary fashion etailer Myntra, has left the company, sources have confirmed to ET.
Previous roles: A veteran in the fashion and retail industry, Kamath has worked with the likes of Shoppers Stop, Globus, Arvind Mills, and Crossword Books, before joining Myntra in 2016, where he stayed for seven years.
Kamath’s contribution: Kamath created a wide portfolio of brands for Myntra including Mast and Harbour, Dressberry, Sangria, All About You, House of Pataudi, Invictus, Ether, Harvard, Kook N Keech, and Modarapido among others.
In 2012, Myntra launched its biggest private-label brand Roadster. The denim brand saw its GMV cross Rs 1,500 crore in 2022.
Also read | Nykaa restructures senior-level management after executive exodus
Another exit: Tribikram Mishra, VP and head of the Roadster brand, has also departed from the fashion etailer to join rollup commerce company Mensa Brands, run by former Myntra CEO Ananth Narayanan.
Other Top Stories By Our Reporters
Axis Bank, HDFC Bank join GoDigit Life’s cap table: GoDigit Life, the life insurance business of GoDigit Insurance has raised equity funding from two major private sector lenders Axis Bank and HDFC Bank.
Study-abroad startup ASL raises $5 million: Adventum Student Living (ASL), a study-abroad platform that owns the UniAcco, UniCreds, and UniScholars brands, said on Monday that it raised $5 million in a bridge equity round led by a new investor, Cornerstone Venture Partners Fund (CSVP Fund).
Global Picks We Are Reading
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■ Subscription Price Creep Is Real. Our Guide to Pushing Back. (WSJ)
