Angel tax: LocalCircles to share details of 150 startups with CBDT against notices issued

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Updated: February 23, 2019 8:46:27 PM

LocalCircles along with iSPIRT had sent recommendations to CBDT on February 22 for expeditious disposal of appeals of startups facing tax orders.

LocalCircles suggested closure of all the appeals against tax orders by March 31 this year.

Local social network LocalCircles will share the details of startups with the central board of direct taxes (CBDT) on February 25 after the latter asked for startups’ names, permanent account numbers (PAN) and the section under which they received tax demand orders from income tax commissioners.

“So far we have details of 150 startups but the number may go up to 300 before sending the list to CBDT on February 25,” LocalCircles Founder and Chairman Sachin Taparia told Financial Express Online.

Rising Clamour

LocalCircles along with iSPIRT (think tank for Indian software products industry) had sent recommendations to CBDT on February 22 for expeditious disposal of appeals of startups facing tax orders under section 56(2)(viib), also known as angel tax and section 68 of the Income-tax Act, 1961.

Section 68 pertains to taxing the funding raised by startup if it is unable to explain the source of capital raised or the explanation itself is not satisfactory as the assessing officer.

“While CBDT has been saying that it is solving angel tax issue but the moot point in the recommendation pertains to Section 68. For this, we recommended that startups which have got the Startup India exemption certificate and have shared the PAN number of their investors, they should be given due consideration to close the appeal,” Taparia said.

So far, start-ups have claimed that due to the sensitive information pertaining to bank statements, IT returns and financial statements, many investors have been wary of sharing it with the government.

“If the startup is unable to produce the necessary details, then the CIT-Appeals may use its powers under section 133(6) of the Income Tax Act, 1961 to obtain such information as investors would still be willing to share it,” LocalCircle said in the recommendation letter.

Long Road Ahead

The letter also said that the relevance of the valuation certificate or the premium at which the shares have been issued should not be a concern any longer. Further, the Startup India recognition should be deemed as a satisfactory explanation against the angel tax orders for exemption.

Nikunj Bubna that runs a monthly subscription service for food and beverage products called the Wow Box received the tax notice in December 2017 but the hearing for the case hasn’t happened till date. “In January 2018 the government came out with a circular to all the income tax chief commissioners that appeals against notices by startups have to be disposed of by March 31, 2018. But till now nothing has happened.”

Similarly, edtech startup uFony’s Ashish Chaturvedi is still awaiting closure of his appeal against the tax order received for the year 2016-17. “The order was under Section 56 for the amount we raised from five Indian investors. However, the assessing officer initially didn’t agree to the DCF method of valuing startups neither to the valuation,” Chaturvedi said.

LocalCircles also suggested for the closure of all the appeals pertaining to DPIIT registered startups or those qualifying to register for DPIIT registration by March 31 this year.

“We requested CBDT to issue Startup India certificates to these startups on priority before they issue certificates to new startup applications following the easing of the angel tax norms by the government recently,” said Taparia.

The turning point in the angel tax controversy, claimed Taparia, has been the survey conducted by LocalCircles earlier this month that said 2,100 or 73% of the startups that raised angel funding since their inception (before or after 2011) have been slapped with one or more angel tax notices.

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