Sabeer Bhatia, the pioneering mind behind Hotmail, recently shared a very startling account of his experiences with the Indian tax authorities. Despite having a techpreneur recognition, he described facing some undue harassment, unveiling the systemic issues which stifle Indian entrepreneurs. The revelations highlight the bureaucratic challenges which curb innovation while dissuading international investors.

Sabeer Bhatia on Harassment by Indian Tax Authorities

In the candid discussion, it was revealed by Sabeer that the online payment startup by him was subjected to false scrutiny by the Indian tax authorities. In PG Radio’s episode 201, when talking with Prakhar, Bhatia detailed how financial transactions were intentionally misinterpreted, leading to unwarranted tax demands to continue his start up. It happened despite the company incurring the losses.

Bhatia alleged that the tax officials were hell bent on falsely accusing his startup for tax evasion which put a significant financial strain on his venture. The conversation that happened during the podcast is stated below.

“One of the first customer was my other company, a travel company. This company was collecting 40 – 50 crores of processing fee but the actual revenue was only 1%. The tax guys alleged that in their opinion our transactional amount is our revenue. How do you argue? And its just a matter of interpretation. But they to harrass us said that we have to pay this and stated that as per the rules we have to pay tax immediately and claim credit later or give us so much (bribe) and we will take care of everything. How can a modern economy grow when I have to explain to a tax guy the difference between transactional amount and actual revenue? So we were actually making a loss. On a loss making (business), they were forcing us to pay taxes and that too 100 times the base rate. ” Bhatia opinied during the podcast on Prakhar ke Pravachan.

The episode available on the channel Prakhar ke Pravachan underscores a large issue of rigid bureaucratic practices that hinder Indian entrepreneurial efforts. It causes the businesses to face suspicion instead of receiving the needed support.

Sabeer Bhatia Call for the IP-Based Economy

Together with their personal struggles, Bhatia articulated a broad vision for India’s economic future. He stressed the need to shift from labour based or service provider based economy to the one that is driven by intellectual property (IP). Citing some global leaders, including Microsoft and Google, Bhatia further argued that India’s reliance on the traditional sectors is limiting the country’s growth potential. He criticized the country’s IT industry’s focus on outsourcing, thereby emphasizing the importance of fostering original innovation.

As per Bhatia, for India to become a tech powerhouse, it needs to develop original tech (service) while encouraging businesses which can attract global capital. Shared experiences of Bhatia serve as a call to action for bringing Indian policy reforms. He advocated having a much more business-friendly environment where the entrepreneurs can thrive without the fear of bureaucratic impediments. Bhatia’s shared story is a poignant reminder of an urgent need to bring systemic change, thereby unlocking India’s vast intellectual potential while positioning the country as a global innovation leader.

Almost never went to Caltech : Sabeer Bhatia

During the same interview, Sabeer got emotional stating how he almost missed an opportunity to study at the prestigious CalTech University due to undue hindrance from Reserve Bank of India regarding the 75% Foreign Exchange Policy.

Bhatia alleged that RBI was hell bent on me receiving scholarship of 75%

“You had to get 75% financial aid and the RBI would allow you to take out foreign exchange for only 25% because they were trying to limit the amount of foreign exchange that people use. The aid that Caltech gave to me came out to be 72% of the total cost. So I went to RBI and said that just give me 25% and I will eat 3% less. But RBI said that the rule is that you have to get 75% financial aid for education from the university. My mom was a banker. And I went to every bank, every RBI, every person I knew, the governor, just begging to allow me to go and I was not requesting any more foreign exchange (other than 25%) what is as per the rule. The rule is 25%, just give me 25% only and I will take care of the remaining 3% expenses from my pocket. They said NO,NO,NO. I almost never went to Caltech.”

Facing hindrance to join Caltech University, Sabeer stated that his father out of desperation faxed the University whether they can increase the aid to 75% from 72%? Surprising to Bhatia, the university responded within 24 hours and wrote “Aid increased to 75%.” Sabeer got emotional while stating the harrowing experience that he faced from India which also prevented him to study abroad.