As soon as the year 2018 began, almost every union budget article in the Indian media discussing startups and venture capitalists had one common demand from the government – address the angel tax-related issue. This tax, which is listed under Section 56 (ii) of the Income Tax Act, attracts a tax rate of 30.9 per cent from private companies, including start-ups raising early stage investments domestically.
Commenting on the issue, in an interaction with Entrepreneur India, Dr. Srikanth Sundararajan, Partner, Ventureast said, “Taxing the entrepreneur viz. angel funding would imply less capital for growth, and an additional burden on top of service tax and income tax, the intent is to fund for growth, here it is treated as income, kind of contrary to ‘startup India’.”
Need to Clear the Air of Ambiguity
Even though the budget did not discuss a word about angel tax, the government indeed got into a damage control mode. Earlier this week, the Department of Industrial Policy and Promotion announced that startups registered before 2016 and the ones which have raised up to INR 10 crore of funding don’t have to bother about angel tax.
The industry cheered the move as media sources predicted that about 300 startups are expected to benefit from DIPP’s initiative.
However, while sharing her views on the announcement, Apurva Damani, Director, Artha Venture said that the government should issue some more clarification on this new development.
“The question which they need to answer is whether the angel investment raised by a startup should be INR 10 crore cumulative or INR 10 crore each round to avail the relaxation,” she asked.
Additionally, soon after the above announcement, Department of Revenue sent a notification to its income tax commissioners stating that no coercive measure to recover the outstanding demand (of angel tax) would be taken from companies that fall under the definition of DIPP.
Read More – Entrepreneur