Author: Mugdha Variyar

Union Budget 2019: No angel tax relief for startups but AI, electric vehicle push could open up opportunities

KV Prasad Jun 13, 2022, 06:35 AM IST (Published)

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The government again acknowledged the role of startups in job creation — India has become the world’s second largest startup hub, it said — but stopped short of providing incentives, including relief from the dreaded angel tax, in the interim budget on Friday, leaving the industry disappointed.

“It is a typical interim budget by the government, where we were hoping there would be relief on angel tax for startups, which unfortunately was not there,” said Nakul Saxena, policy expert at Ispirt. “This issue nees to be addressed for enabling startups to prosper,” he added.

Opportunities For Startups

Industry members such as IAMAI have however identified opportunities that could open up for startups especially in the Artificial Intelligence space as well as electric vehicles, with the finance minster emphasising on the two areas.

The government announced a National Programme on ‘Artificial Intelligence’ and also announced the establishment of the National Centre on Artificial Intelligence as a hub along with Centres of Excellence. Finance minister Piyush Goyal said nine priority areas have been identified and that a National Artificial Intelligence portal will also be set up.

“Creating National Center for Artificial Intelligence is a welcome move and it shows that the government is serious about the start-up economy,” said Sanjay Sethi, CEO, ShopClues.

Goyal also said electric vehicles with renewables will become a major source of energy supply. He said India will lead the world in the transport revolution through electric vehicles and energy storage devices, bringing down import dependence and ensuring energy security.

However, the infrastructure for EVs is still distant. Recently, the India marketing head for Kia Motors Manohar Bhat said there were infrastructure constraints such as charging for bringing EVs to India as well as need for policy by government.

MSMEs

The government said that the small service providers with a turnover of up to Rs 50 lakh can now opt for composition scheme and pay GST at 6 percent instead of 18 percent. What will the impact of this be?

The finance minister said more than 35 lakh small traders, manufacturers and service providers will benefit from trader friendly measures, which also include previous announcements such as exemptions from GST for small businesses doubled from Rs 20 lakh to Rs 40 lakh.

The government is also set to allow business comprising over 90 percent of GST payers to file quarterly returns.

The finance minister also announced that GST-registered SME units will get 2 percent interest rebate on incremental loan of Rs 1 crore.

“Happy to see concrete steps taken by the government in this budget to ease the process of doing business for the micro and small enterprises especially filing quarterly returns for entities less than Rs 5 crore. The interest subvention of 2 percent on loans up to Rs 1 crore for GST-registered MSME is also a good move and brings down the debt burden of these small entities,” said Mehernosh Tata, head- SME, Edelweiss Retail Finance.

The finance minister also reiterated in the budget the incentives that have been given to startups and small business in earlier budgets. These benefits include a threshold limit for presumptive taxation of business raised from Rs 1 crore to Rs 2 crore. The benefit of presumptive taxation was extended for the first time to small professionals fixing threshold limit at Rs 50 lakh. In order to promote a less cash economy, the presumptive profit rate has been reduced to 6 percent from 8 percent. The tax rate for companies with a turnover of up to Rs 250 crore, covering almost 99 percent of the companies, was reduced to 25 percent which was also applicable to new manufacturing companies without any turnover limits.

Government As A Buyer for MSMEs

The government as a customer is a strong push to small companies, especially if the sourcing is done transparently. The FM announced that the requirement of sourcing from SMEs by government enterprises has been increased to 25 percent. “Increased sourcing from MSME sector to 25 percent for government projects should help in job creation,’ said Rajeev Singh, Partner, Deloitte India.

The government highlighted how the sourcing has panned out through the government eMarketplace (GeM) over two years. Transactions of more than Rs 17,500 crore have taken place, resulting in average savings of 25-28 percent. The GeM platform is now being extended to all public sector units.

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Amazon India drops products from site, says new e-commerce policy to hit price selection for customers

KV Prasad Jun 13, 2022, 06:35 AM IST (Published)

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Amazon.com Inc has come out with a strong statement on the new FDI rules in India, stating that the policy will affect price selection and convenience for customers and sellers, in one of the first significant comments from the e-commerce giant. The statement came even as Amazon India brought swift changes to its platform overnight on Thursday to comply under the new rules, with its seller entities Cloudtail and Appario virtually disappearing from the platform, and several of its private label products also missing.

The impact of the rules was a concern raised by multiple analysts during the Q4 earnings call on Thursday, just a day ahead of the FDI rules coming into effect, marking a significant impact on Amazon’s business structures in India, especially its control on inventory and pricing.

The Indian government has not given Amazon and Walmart-owned FLipkart anyway leeway in complying with the new e-commerce policy, reiterating on Thursday that there will be no extension of the February deadline.

“There is much uncertainty on the impact of government rule changes on ecommerce,” CFO Brian Olsavsky said on the call. “We remain committed to complying to the rules, but we are evaluating the situation. The main concern is trying to minimize impact on consumers and sellers.”

“We built the business around price selection and convenience, the changes don’t help in those dimensions for both sellers or customers,” Olsavsky said.

Asked whether the new policy will change the attractiveness of the Indian market for Amazon, the company reiterated the impact but said it continued to have long-term prospects.

“We are still evaluating. We feel good about the long term prospect in India. The new regulations need to be interpreted to ensure they have unintended consequences. It is not consistent with better price , better selection,” the company CFO said.

The new rules impact how e-commerce companies with FDI funding control inventory, disallows seller entities in which these companies have equity stake and also restricts how much vendors selling on the marketplace can source from the wholesale business of the e-commerce company

India’s significance for Amazon’s international business was highlighted during the earnings call last quarter, when Amazon said international sales slowed in the September quarter on account of Diwali falling later in the year in India than in 2017,

In the December quarter, Amazon’s international business, driven mainly by India, had seen a growth in sales of about 15% to $20.8 billion, suggesting slowing international growth for the e-commerce behemoth. Amazon had seen international sales grow by 30% in the same quarter in 2017.

However, Amazon is starting to rein in international losses which stood at $642 million in Q4, lower than the $919 million record the same quarter last year.

Overall, Amazon saw sales hit $72.4 billion in the December quarter, with full year sales reaching $232.9 billion, compared with $177.9 billion in 2017.

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Mindtree co-founder Ashok Soota bats for white knight investor to stop takeover bid

KV Prasad Jun 13, 2022, 06:35 AM IST (Published)

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As Cafe Coffee Day founder VG Siddhartha’s stake sale in Bengaluru-headquartered mid-tier IT services firm Mindtree is expected to close soon, Ashok Soota, who was the co-founder and former chairman of the company, seems to have sided with the firm’s management.

In an exclusive interview to CNBC-TV18, Soota said the best outcome for Mindtree would be a white knight investor instead of a deal that could lead to a possible takeover.

Siddhartha and his associates hold nearly 21 percent in Mindtree and is in talks with engineering and construction major Larsen & Toubro (L&T), which the management is worried could lead to hostile takeover.

However, the Mindtree management is in talks with investors such as private equity firm KKR to set up counter offer to ensure they do not lose control of the company.

Soota said the ideal situation for Mindtree is to get a white knight rather than another player, who may have their own plans, but did not name L&T or KKR in particular.

He said the Mindtree management may have a cash crunch and they can leverage both debt and equity for a “win-win” deal.

In 2011, Ashok Soota, currently the founder and executive chairman of Happiest Minds, stepped down from Mindtree and the stake was bought by Siddhartha.

Calling Siddhartha’s decision to sell his stake was not surprising as he has been a venture capitalist in Mindtree since 1999 and was an angel investor for the current executives from 2011, “It is natural to monetise and it is not surprising that he is looking for potential buyers.”

“The Mindtree management has done a good job. They have maintained good standards of corporate governance and have a runway ahead. It is logical for them to want to retain control. If I was in the current management place, I would have made similar effort,” he added.

Siddhartha is said to have entered an enabling resolution with L&T for a deal of Rs 975-1,000 per share, which is lower than initial offer of Rs 1,200 per share.

Mindtree, in the December 2018 quarter, posted a 35.1 percent rise in consolidated net profit, and 29.7 percent jump in revenues at Rs 1,787.2 crore over the year-ago period.

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Coffee Day initiates steps to free Mindtree shares as stake sale talks progress

KV Prasad Jun 13, 2022, 06:35 AM IST (Published)

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Following an Income Tax (I-T) department order to attach a portion of shares held by VG Siddhartha and his group Coffee Day Enterprises over a potential tax demand, the company has initiated steps to free shares of Mindtree even as the talks for stake sale is in progress.

Coffee Day has asked the I-T department to attach Rs 150 crore worth of shares of the coffee chain instead of Mindtree, owned by the company and its promoter Siddhartha, said sources familiar with the matter.

The Income Tax department has attached Siddhartha’s and Coffee Day’s shares, amounting to 4.5 percent of Mindtree, citing potential claims on an ongoing assessment.

Further, Coffee Day Enterprises — which operates popular coffee chain CCD — said it has already discharged its tax liability along with the revised returns.

“There is no tax liability payable by the company and its subsidiaries as per the revised returns filed. The promoter has discharged all the tax liability along with the revised returns. Further, there is no undisputed tax liability for the promoter and the company,” Coffee Day Enterprises informed in a regulatory filing on Saturday.

The development comes at a time when Siddhartha, who owns about 21 percent stake in Mindtree through various entities, is said to be in advanced discussions to sell his shares in the IT firm.

The I-T department order cited potential tax obligations but sources said it is likely linked to raids on Coffee Day in 2017.

On January 26, Mindtree had informed the stock exchanges that the I-T department has attached a portion of shares held by Siddhartha and Coffee Day Enterprises Ltd in IT firm Mindtree.

It added that the attachment also “prohibited for transfer or charge” of 22.2 lakh equity shares of Coffee Day Enterprises Ltd, and 52.7 lakh shares held by Siddhartha.

Siddhartha is keen on closing the stake deal this week and L&T  has emerged as the top contender and has entered into enabling resolution with Coffee Day and Siddhartha to buy 21  percent stake in Mindtree.

He is looking to deleverage balancesheet in order to pay off Coffee Day’s debt of about Rs 5,000 crore. He is also in talks to divest from office tech park in Bengaluru.

Coffee Day Enterprises Limited said it has an outstanding debt of Rs 923 crore as of Q2 FY19 and market value of investment in Mindtree held by the company is Rs 2,437 Crore.

According to the sources, the deal with L&T will be at Rs 975-Rs 1,000 per share, lower than the initial offer of Rs 1,200 per share by the construction major.

Meanwhile, the Mindtree management is hustling to prop up a rival bid through another investor and have held talks with private equity companies such as KKR as well as some family offices, the company insiders told CNBC-TV18.

Mindtree’s promoters, which include Subroto Bagchi, Krishnakumar Natarajan, NS Parthasarathy, and Rostow Ravanan, together hold roughly 13 percent stake in the company.

Siddhartha and the Mindtree founders were unavailable for comment while L&T did not respond to queries.

With inputs from PTI.

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Analysis: Mindtree stake sale is turning out to be a thriller

KV Prasad Jun 13, 2022, 06:35 AM IST (Published)

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Mid-tier IT company Mindtree posted strong third quarter earnings. Revenue soared to a record $250 million. Yet, the focus in recent days has been on the impending stake sale of its largest shareholder VG Siddhartha and his group Coffee Day.

It was supposed to be a normal stake sale; Siddhartha was expected to close the sale within this week. But a filing by the company on Saturday revealed a new twist. The Income Tax department has attached Siddhartha’s and Coffee Day’s shares, amounting to 4.5 percent of Mindtree, citing potential claims on an ongoing assessment, according to the company.

The I-T department action has triggered speculation that the stake sale may be delayed, though sources familiar with the deal say it is on track.

The stake sale has taken the form of thriller now. Who will acquire Siddhartha’s shares?  Besides the I-T angle, a tussle for the stake has also emerged.

L&T Infotech has emerged as the lead bidder but has caused discomfort in the promoter camp, mainly because the takeover could lead to structural changes that could also see the shunting out of the current management. However, SN Subrahmanyan, managing director and CEO of the company, said that the “reports regarding acquisition of Mindtree were purely speculation“.

The promoters are now hustling to prop up a rival bid through another investor and have held talks with private equity companies such as KKR as well as some family offices, a company insiders told CNBC-TV18.

Siddhartha meanwhile might just be focused on getting his securities released by the I-T department. Coffee Day is set to file an appeal against the order. Company insiders say they are confident that there are no tax liabilities on Coffee Day and that the shares should be released in a matter of days.

This might just give the promoters a breather to push through a new bidder to thwart L&T Infotech’s plans.

But until that happens, this story is turning into a corporate version of Andhadhun.

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As Flipkart, Amazon gain market share, Paytm Mall feels the heat

KV Prasad Jun 13, 2022, 06:35 AM IST (Published)

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Sales of Paytm Mall, the ecommerce unit of digital payments company Paytm, have been falling sharply, with the company also losing significant market share in a segment dominated by US-owned companies Flipkart and Amazon India.

The market share of Paytm Mall almost halved in 2018 to 3 percent from 5.6 percent in 2017, according to data by Forrester Research. In terms of gross merchandise value — a measure of the growth of an ecommerce business — sales slipped to $800 million in 2018 compared with $1 billion in 2017, according to industry sources. Losses were at Rs 1,787 crore on total revenue of Rs 775 crore in FY18.

The fall in GMV (gross merchandise volume) was despite the huge amounts of cashbacks offered by the company on its platform, the sources said, asking not to be named.

Paytm Mall gained unicorn status last year with a valuation of $2 billion after funding of $450 million from Japan’s SoftBank and Alibaba of China.

The declining fortunes of Paytm Mall are a shining example of the struggles of ecommerce players against the Indian unit of Amazon Inc and Walmart-owned Flipkart that are flushing millions of dollars into the Indian market.

A report last month by Barclays said in FY18,  Amazon generated $7.5 billion of GMV compared to $6.2 billion by Flipkart, excluding its units Myntra and Jabong, while the total GMV was similar when including Myntra and Jabong in the financial year ended March 31, 2018.

The investment bank said Amazon and Flipkart Group are neck and neck at a $11.2 billion GMV run rate for FY19.

India’s over $20-billion ecommerce market has slowed in the past two years, but is still among the fastest growing in the world.

Sellers on Paytm Mall have also cited trouble over falling sales, and said the company has asked them to not ship stock to its warehouses over the last few days but to fulfill orders directly with the customers. This is indicative of falling orders, they said. They too requested anonymity.

Paytm Mall has not been able to create a positioning, other than cashbacks, said Satish Meena, senior forecast analyst, Forrester Research.

“For Paytm the bigger problem is on focus on a particular business, given that it is doing multiple things, and it has not been able to execute its O2O strategy for Paytm Mall,” said Meena.

“Flipkart and Amazon have a clear positioning on customer experience, while Snapdeal and Shopclues have a position around long-tail products,” Meena added.

Paytm Mall did not respond to specific queries on market share. The company’s website shows that it had fulfilment centres in 11 regions in the country, which it said was owned by third-party players.

Paytm Mall also launched a wholesale business late last year, following in the footsteps of Amazon and Flipkart. A company source said there will be no impact on its wholesale business due to the recent FDI (foreign direct investment) rules.

Ecommerce firms in India cannot sell products via entities in which they have an equity interest or push sellers to sell exclusively on their platforms from February 1 under the new rules. The Paytm Mall source said the company does not have related entities that are sellers on the marketplace.

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Startups to raise concerns over new angel tax notification with government

KV Prasad Jun 13, 2022, 06:35 AM IST (Published)

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Expressing dissatisfaction over the government’s new notification on angel tax, startups are going to present some recommendations to the centre next week through industry bodies such as iSPIRT and LocalCircles.

Their concerns revolve around the increase of threshold income of the investor to Rs 50 lakh for the preceding year and the new rule which will allow Central Board of Direct Taxes (CBDT) to take the decision on tax exemptions for startups.

The government on Wednesday eased the procedure for seeking income tax exemption by startups on investments from angel funds and prescribed a 45-day deadline for a decision on such applications.

The new procedure says that to seek the exemption, a startup will apply, with all the documents, to the Department of Industrial Policy and Promotion (DIPP). The application of the recognised startup shall be moved by the department to the CBDT with necessary documents.

Industry bodies are expected to recommend an increase in the limit for share premium of startups to Rs 25 crore from Rs 10 crore to make it more feasible for investors.

Industry members are als suggested that the restriction on an investor of a minimum income of Rs 50 lakhs and net worth of RS 2 crores be changed to consider either a minimum income of RS 25 lakhs or net worth of Rs 1 crore. Startups said this will help them in raising funding from NRIs,  friends and family.

The government notification said that investor should have returned income of Rs 50 lakh or more for the financial year preceding the year of investment; and net worth exceeding Rs 2 crore or the amount of investment made/proposed to be made in the startup, whichever is higher, as on the last date of the financial year preceding the year of investment/proposed investment.

Given the large number of applications expected to be directed to the CBDT, startups want that response be given within 45 days or it should be considered as deemed approval.

Lastly, what has also left the industry wondering is whether a startup that has already received an assessment order be eligible under the new notification. Industry members are also going to ask that such startups be able to seek recourse under this circular during their appeal.

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Startups write to PMO, seek angel tax exemption

KV Prasad Jun 13, 2022, 06:35 AM IST (Published)

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The startup and angel investor community are continuing to press the government to address the issue of angel tax and have now reached out to the Prime Minister Narendra Modi in the hope of getting some reprieve in the upcoming interim budget 2019.

About 100 startups, represented by industry bodies such as Ispirt are issuing a letter to the PMO (Prime Minister’s Office) this week highlighting the issues around angel tax, CNBC-TV 18 has learned.

Startups had earlier written to the revenue department, Department of Industrial Policy and Production (DIPP) and Central Board of Direct Taxes (CBDT) on the issue, after several startups received notices in recent months and were asked to pay as much as 30 percent of their total funding raises as tax.

In their demands to the PMO, they seeking that Section 56 and Section 68 of Income Tax Act not be applicable to startups.

While Section 56 has been the main cause of concern for angel tax, since it considers capital raised above fair market value of shares as income from other sources, startups are also seeking relief from Section 68, which deals with money credited for which the company does not have a satisfactory explanation or has to also offer details on source of income of the investors.

Startups are also seeking that tax benefits announced in 2016 be made retrospective to companies that were formed before.

While the government had issued a notification last year to give exemption to startups, where total funding was not more than Rs 10 crore, it still entailed tedious steps such as getting an approval from an inter-ministerial board, and a certificate of valuation by a merchant banker.

Despite the notification, startup founders said they have been hounded by tax notices and cases continue to linger on. The startup community has been pushing for these issues to be addressed in upcoming interim budget.

Earlier this month, industry bodies such as Nasscom, The IndUS Entrepreneurs (TiE) and others had written to the union finance minister Arun Jaitley as well as the union commerce minister Suresh Prabhu to bring relief to startups from the angel tax.

The Indian Private Equity and Venture Capital Association (IVCA) had also written to CBDT last week asking for exemption to all registered

Last week, Prabhu had acknowledged the issue again and said the ministry was working with the finance ministry in order to find the appropriate solution to angel tax.

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Ananth Narayanan steps down as Myntra Jabong CEO

KV Prasad Jun 13, 2022, 06:35 AM IST (Published)

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Flipkart on Monday said Ananth Narayanan, the chief executive officer of Myntra Jabong, has decided to step down from his post to pursue external opportunities.

Amar Nagaram, the vice president for consumer shopping experience at Flipkart, will replace Narayanan, the company said in a statement. Nagaram will report to Flipkart Group CEO Kalyan Krishnamurthy.

CNBC-TV18 reported earlier in the day that Narayanan will step down today.

Narayanan has played an important role in making Myntra and Jabong into a formidable player in the fashion ecommerce market and steering the company towards sustainable growth, the company said.

“Over the last three and a half years, he and the management team have built a strong foundation for the company which has become known for its innovative approach to business and building a unique culture of fashion and technology that has helped create a differentiated positioning for the business,” Flipkart added.

Myntra and Jabong were merged in November last year and Jabong laid off more than 100 employees as part of the restructuring and integration with Myntra.

Narayanan’s decision to step down from the company comes following co-founder Binny Bansal’s exit in November, who was instrumental in bringing Myntra-Jabong directly under Krishnamurthy.

Bansal’s resignation marked the exit of co-founders from Flipkart. Sachin Bansal had exited the company they founded after selling his stake to US retailer Walmart.

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RBI’s Nandan Nilekani-led panel on digital payments should have represented PCI, says industry body

KV Prasad Jun 13, 2022, 06:35 AM IST (Published)

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The Reserve Bank of India’s newly constituted committee for boosting digital payments should have included members from the industry body Payments Council of India (PCI) that represents digital payments companies, its chairman Vishwas Patel said.

The Reserve Bank of India on Tuesday constituted a high-level committee headed by former Unique Identification Authority of India
chairman Nandan Nilekani for deepening digital payments in the country.

Besides Aadhaar architect Nilekani, the other members of the panel are former RBI deputy governor H.R. Khan, former managing director and chief executive officer (CEO) of Vijaya Bank Kishore Sansi, former secretary in the ministry of IT Aruna Sharma and chief innovation officer at the Center for Innovation, Incubation and Entrepreneurship, IIM Ahmedabad, Sanjay Jain.

Patel, who has been associated with PCI since its inception in 2013 and was serving as the co-Chairman of PCI before taking over as chairman, welcomed the move but also voiced his concern over lack of direct representation of digital payment players.

“It is a welcome move by the RBI, and all the members are experienced in payments,” Patel told CNBC-TV18. “But the committee should have included members from PCI since it constitutes 95 percent of payments processed in the country.”

Patel said the PCI would give recommendations to the RBI-constituted committee on the sector.

“There are several issues plaguing the payments industry. While data localisation was a good step, there are challenges for wallet players in customer onboarding due to the Aadhaar ruling,” he said.

Patel also suggested that the new committee should loop in pointers from the Ratan Watal Committee report. PCI was part of the Ratan Watal Committee on digital payments that recommended more opportunity for non-bank payment players.

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KV Prasad Journo follow politics, process in Parliament and US Congress. Former Congressional APSA-Fulbright Fellow