Section 79 of the Income-tax Act needs a rethink in the digital age: Snapdeal & PwC

Ahead of the Union Budget, Snapdeal and PwC released a joint first-of-its-kind whitepaper titled ‘Rethinking section 79 of the Income-tax Act for a digital economy’. The whitepaper is first in a bimonthly series which examines changes required in regulatory environment to keep pace with rapidly evolving digital businesses and venture capital funded start-ups. The first issue recommends relaxation of restriction on, carry forward and set off of tax losses under section 79 of Income-tax Act to reduce risk for promoters and investors in investor funded digital businesses.

This communiqué covers an important issue facing start-ups and digital businesses around section 79 of the Income-tax Act, 1961 wherein they are unable to carry forward and set off the business losses that they typically incur in the initial years of their operations, because of the dilution of the original promoter shareholding beyond 49%, to other investors/VCs/PE players. The paper makes the case that with dynamic infusion of funds in modern start-ups, the shareholding patterns change often. In light of the rigours of this section certain key recommendations have been made.

Speaking at the release of the whitepaper, Mr. Kunal Bahl, Co-founder and CEO, Snapdeal said, “India is the world’s fastest growing digital commerce market in the world with a 60% growth year on year. The impact of global technology trends and fast evolving consumer behaviour means rapid introduction of new business practices. It is imperative that regulation, policy and business evolve in sync and recalibrate often so that the rules of engagement are mutually clear, contemporary and relevant. The responsibility of this lies both with the government and the industry. We are pleased to contribute in this regard through our joint initiative with PwC to publish a series of communiqués focusing on policy matters relevant for digital businesses. We are confident that PwC’s depth of global experience and Snapdeal’s close understanding of industry issues will add value to this on-going discourse that is helping shape India’s digital businesses."

Mr. Sandeep Ladda, Partner and Leader – Technology and eCommerce, PwC India said "we're delighted to be able to combine Snapdeal's unparalleled industry knowledge and experience of dealing with several policy and regulatory challenges, with PwC's tax and regulatory expertise, having advised regulators, governments, and corporations, on the technical and practical aspects of developing and implementing tax, policy and regulatory initiatives. The communiqué attempts to present a picture of the real-time issues facing the industry and suggestions on how to tackle them in an effective manner.”

India’s digital economy is disrupting the current business landscape, given that the number of Internet users in India is expected to cross 790 million by 2020. Also, more than 80% of these users will get online through mobile phones. With improvements in network infrastructure, significant investor interest and foreign funding, India has emerged as one of the fastest growing bases of start-ups worldwide. Driven by the progressive technology-centric initiatives launched by the government last year—viz. ‘Digital India’ and ‘Start Up India’—one can expect that for sectors like eCommerce, Internet businesses, Fintech, etc., the best is yet to come.