March 01, 2005

Welcome move to free start-ups from service tax

The proposal in the latest Indian Union Budget to exempt service providers with up to Rs 4 lakh gross turnover from charging service tax, is a highly welcome move from two aspects:

1. It frees start-ups from the need to bother about service tax registration and payments until they figure out their business model (and hence viability).

2. Service tax is, on paper, supposed to be born by customers. However, start-ups - which typically do not enjoy pricing power - are often forced to "swallow" the service tax component in their pricing, in the process killing whatever profit margins they might enjoy.

Arun Natarajan is the Editor of TSJ Media, which tracks venture capital activity in India and Indian-founded companies worldwide. View sample issues of TSJ Media's Venture Intelligence India newsletters and reports.