More than 2,100 startups slapped with angel tax notices, says IVCA, LocalCircles survey

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Published: February 4, 2019 12:08:56 PM

From 2,883 startup responses, 45% startups had received one or two such notices while 28% startups said to have got three or more notices questioning the angel investment raised.

Union Budget 2019 Tax Slab, Budget 2019 Income Tax Slab, Standard Deduction73% startups that received angel tax notices had raised funding between Rs 50 lakh to Rs 2 crores.

More than 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 from the income tax department, showed a survey by PE, VC body Indian Private Equity and Venture Capital Association (IVCA) and community social media platform LocalCircles.

From 2,883 startup responses, 45% startups had received one or two such notices while 28% startups said to have got three or more notices questioning the angel investment raised.

73% startups that received angel tax notices had raised funding between Rs 50 lakh to Rs 2 crores.

“Like we said that let data do the talking, this brings more clarity to the issue of angel taxation…seemingly this survey gives a more credible data,” IVCA president Rajat Tandon said in the survey.

The notices were sent to startups under section 56(2)(viib} (angel tax) or section 68.

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.

70% startups had got notices under angel tax while only 6% got it under section 68. 24% respondents said that they were sent notices under both sections.

“Startups are willing to submit a set of 4-5 documents which can easily help DIPP and CBDT differentiate them from shell companies but this devil of angel tax for startups must go away,” said LocalCircles founder and chairman Sachin Taparia.

The startup and investor community had found the much awaited relaxations by the government in angel tax to be half-hearted.

The biggest clamour is around the mandatory income tax returns requirement for an angel investor of at least Rs 50 lakh for the year preceding the investment year.

While it ensure the credibility of the angel investors but the definition of investor, according to serial entrepreneur and partner at venture-builder platform GrowthStory K Ganesh, to be eligible of tax exemption is unwarranted.

This is because most of the times the initial money comes from friends and family in small amounts.

“For instance, if an entrepreneur raises Rs 5 lakhs from his relative, the amount will be taxed unless the relatives had the income of Rs 50 lakhs per annum or net worth of Rs 2 crores,” said Ganesh.

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