Sunday, February 10, 2019

What startup executives & investors said about the angel tax issue -

What startup executives & investors said about the angel tax issue Uncertainty around angel tax has created quite a stir on Twitter. While early-stage companies have been complaining of harassment by tax authorities for months now, there has been no clarity around the issue so far.

This issue will also likely result in domestic investments further dipping in the country. Early-stage funding during January-June 2018 declined to $137.8 million as compared to $200 million in 2017. Seed rounds also fell by 22% year-on-year to 870, according to Tracxn data. Additionally, the number of funding rounds fell to 924 in 2018 from 1,161 a year ago.

According to a survey conducted by the Indian Venture Capital Association (IVCA), a grouping of investors last month, more than 2,000 startups that had received funding from investors — angel financiers, private equity (PE) and venture capital (VC) funds — have received notices under the ‘angel tax’.

In a bid to address the situation, the Department for Promotion of Industry and Internal Trade (DPIIT) and Central Board of Direct Taxation (CBDT) said that it will likely increase the exemption threshold for startups from the so-called Angel Tax. If the share premium of the company does not exceed Rs 25 crore, up from its earlier limit of Rs 10 crore, the startups will get immunity from the taxation, ET reported on Friday.

Several key personalities from the startup ecosystem including entrepreneurs and investors also took to social media over the weekend to openly share their views around this topic, backing fledgling startups.

FreeCharge founder Kunal Shah tweeted, “If a country and its system doesn’t favor and encourage its entrepreneurs and risk takers, it will remain a nation of job seekers and repel wealth as a nation. If new age entrepreneurs live in fear of the system, they will either leave the country or turn into a job seeker.

Sameer Nigam, chief executive officer at PhonePe tweeted "How many budding entrepreneurs just said 'Nothing is worth this crap'? How many jobs did India lose? Time to change our legal system. This man should be able to sue the IT dept for direct and indirect losses, unless they can prove that his Angels are tax evading demons."

Rehan Yar Khan, managing partner at Orios Venture Partners, tweeted, “The process of asking for startup registrations for exemption from Angel Tax, is like asking the public to wear bulletproof vests to avoid machine gun fire. Instead, notices must go after deep consideration Section 56 itself is not bad, it's application has been irresponsible.”

GSF founder Rajesh Sawhney wrote on Twitter, “I am suspending all angel investing till the time #AngelTax is abolished. I will offer my one hour everyday free to a startup that requires mentoring till March 31.”

Arguing to this, K Ganesh, founder of Portea Medical, tweeted, “Seriously don’t do that - still engaging through @DIPPGOI for positive outcome . As #Enterpreneur, we are always optimistic. Stay the course. On the flip side, don’t offer 1 hour free, I fear the #startup would get taxed on deemed income you did not charge, you will get notice.”

While not many of the seasoned entrepreneurs have been strongly vocal about it, investors have been batting for early-stage companies who will be adversely hit by it.

Venting agony over the I-T department freezing the company’s accounts, Pushpinder Singh, founder of Travelkhana took to Twitter on Friday and tweeted, “The bank manager said that four I-T inspectors came and forced the bank manager to make DDs (demand drafts) from all accounts. The bank manager said that this is commonplace these days.”

The tax department said it had recovered Rs 36 lakh from the startup. Explaining the move, in a late night statement, the Central Board of Direct Taxes said the action was taken due to unexplained cash deposits received by the company and should not be seen as going back on an earlier assurance.

Referring to Singh’s tweet, Rehan Yar Khan, tweeted, “Very distressing to read about the insensitivity of the Income Tax Department. They ask for tax details of 49 investors and when founder asks for a month to furnish, they freeze the company accounts and withdraw funds!”

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