FM abolishes scrutiny under Angel Tax; VCs and startup laud budget.
The Budget outlines for startups and investors who file the requisite disclosures will not be subjected to any kind of scrutiny by tax officials in respect of valuation of share premium. Further a mechanism of e-verification will be put in place and capital raised by startups will not come under any kind of scrutiny.
Industry Views on Angel Tax
“It was a draconian UPA legacy which is being corrected and it’s a valid step taken across. I think it’s a big win for the ecosystem and I see this positive move as no longer investors and startups would be subject to scrutiny” said Sanjay Mehta, Angel & PE Investor.
Mehta adds, “While we wait for the fine print, the speech by FM gives relief and clarity for the investors and it’s a good beginning. One thing that came by surprise was the dedicated TV
Under the Angel Tax, authorities used to scrutinise investments in startups aggressively and many VCs lost interest in investing in startups. Industry was looking for a resolution.
“Angel tax issue is not fully resolved except that they are saying that there will be no scrutiny, and they are saying there will be more leniency. But I think they need to still remove all the possible issues which startups can face and also make sure startup registration happen at an accelerated level, time line needs to be more efficient. But the intent is at least positive by saying that there will be no scrutiny,” said Navin Surya, Chairman at FinTech Convergence Council & Non-Executive Chairman at Payments Council of India.
Surya further said, “While we are trying to attract more FDI we need to keep things simpler & thankfully our startup culture is at a very interesting level in India and it’s growing, so more and more positive things are required to come along the way from regulatory aspect.”
Startups Welcome Angel Move
“All good VCs and established angel houses were as it is doing disclosures, this announcement will benefit mainly those who are taking angel investments from first time angels or who are not registered or part of any angel consortium. Further it will encourage them to do proper disclosures so the that both startup & investors can do it in a regulated and proper manner” said Gaurav Chopra, Co-Founder at IndiaLends.
Chopra added, “At the same time it will open up more funding for startups especially those who don’t have access to established VCs.”
A startup on the condition of anonymity said “If the FM in the speech could’ve added that Income Tax department will be guided to stop scrutinising startups till these steps are fulfilled by the GoI.”
Previously Tax department had issued notices to some startups and even sought to levy fine.
Angel tax could have been that iceberg which can sink a ship of startups. However, the government was responsive. First, they came up with a mechanism to register under DIPP to avoid such kind of scrutinies. Now, FM has clearly laid down the plan of how to address this issue permanently, said Bhavin Patel, Co-founder & CEO, LenDenClub.
Patel added that provision of e-verification of such investment would verify such transactions. The same can be related in the declaration made by from startup and their angel investor. I hope that this move may end the unnecessary scrutiny of startups under the name of angel tax.