The Indian start-ups and investors’ community on Friday welcomed the government’s decision to ease angel tax regulations and the introduction of e-verification process for them when they raise funds.
In a relief for the start-ups community, Finance Minister Nirmala Sitharaman said the start-ups and their investors who file requisite declarations and provide information in their returns will not be subjected to any kind of angel tax scrutiny.
“Doing away with the scrutiny of valuation of documentation on Angel Tax is an excellent step that will help facilitate funding. Start-ups can expect lesser regulatory requirement, besides reducing their tax compliance burden,” said Kunal Bahl, member of NASSCOM Start-up Council and Co-founder of Snapdeal.
According to Ravi Narayan, CEO, T-Hub, the introduction of the e-verification process for start-ups when they raise funds will provide a bankable and transparent control to the IT department.
“Start-ups will not have any tax scrutiny on raising funds as the investors, their source of funds, and investment dealing details will not depend on human interventions anymore but solely on e-verification mechanisms,” Narayan told IANS.
While presenting her maiden Union Budget, Sitharaman said that the issue of establishing identity of the investor and source of his funds will be resolved by putting in place a mechanism of e-verification.
“With this, funds raised by start-ups will not require any kind of scrutiny from the Income Tax Department,” she said.
Introduced in 2012 by the then United Progressive Alliance (UPA) government, angel tax received widespread criticism from the start-ups community as some of them began receiving I-T notices for non-payment of dues.
Raviteja Dodda, CEO and Founder, MoEngage said the new regulations around Angel Tax will help founders focus on the execution and build great businesses.
“As the start-ups are valued on multiple parameters, traditional DCF (Discounted Cash Flow) or NAV (Net Asset Value) methods cannot be applied here to calculate the Fair Market Value,” said Dodda.
The finance minister also announced to start a television programme within the DD bouquet of channels exclusively for start-ups.
“This shall serve as a platform for promoting start-ups, discussing issues affecting their growth, matchmaking with venture capitalists and for funding and tax planning. This channel shall be designed and executed by start-ups themselves,” said Sitharaman.
According to Ashish Bhatia, Founder, India Accelerator, a platform like the American “Shark Tank” TV show via a Doordarshan umbrella will also help many of the start-ups, particularly in the early stages to raise funds and let the whole nation know about them.
“The idea to have a separate channel for start-ups under the aegis of Doordarshan will help disseminate critical information on a real-time basis to budding entrepreneurs in the tier II and III markets,” added Vishal Gondal, CEO and Founder GOQii.
At present, start-ups are not required to justify fair market value of their shares issued to certain investors including Category-I Alternative Investment Funds (AIF).
“I propose to extend this benefit to Category-II Alternative Investment Funds also. Therefore, valuation of shares issued to these funds shall be beyond the scope of income tax scrutiny,” said Sitharaman.
She also proposed to relax some of the conditions for carry forward and set off of losses in the case of start-ups.