Budget could have had incentives for co-working sector. The government has not enabled co-working firms to claim input credits on work contract and construction services supplied, as detailed under GST provisions.
We welcome the budget for ushering in policies that will help in the growth of the overall economy. While the government has been positive on a macro vision for the rural economy, some measures could have been taken to bolster the co-working sector specifically and smart cites.
There have been no measures around GST and taxation in Budget 2019 to help co-working firms. Input tax credit under GST is an important issue that concerns the sector. The government has not enabled co-working firms to claim input credits on work contract and construction services supplied, as detailed under GST provisions. This would have checked the increased outflow of cash that co-working firms are currently experiencing. Co-working firms were also hoping that input tax credit under GST be extended to developers so that it could have been passed on to companies who lease out space and thereby reduce their overall costs.
Coworking firms were expecting that the government would curb or altogether eliminate Angel tax this Union budget as it would enable the firms to lease more spaces for start-ups, enterprises, MSMEs and entrepreneurs. Angel tax would hurt the start-up edifice and indirectly co-working firms would desist from leasing co-work spaces. Angel funding is now being considered as income and is being taxed at the full income tax rate of 30 per cent. This will detract higher investment in co-working spaces.
Co-working has become a thriving ground for start-ups. While the government announced that India is the second largest start-up hub in the world, there were no announcements to incentivise start-ups. Also considering that startups do not earn the profit in their initial business years, we were expecting that the government could have lowered the income tax slabs for startup employees which would have supported startups to reduce costs. Hence, we were expecting some important tax exemptions that would have given an enhancement to all existing and upcoming startups as this would have increased demand for co working spaces.
Companies may find it difficult to work without improvement in infrastructure to expand in metros and make a move into Tier II and Tier III cities too. Co-work firms were also hoping that bank funding for start-ups would have been enhanced to make available greater access to financial resources to start-ups. There was no announcement in this regard.
[This is an authored article by Manas Mehrotra, Chairman at Incubex NestaVera. All views, opinions and expressions are personal and limited to the author.]