Although the current central government exempted ‘innovative’ startups from angel tax last year, it appears that tax is one issue that continues to haunt startups in the country.
Investor and ex-CFO at Infosys Mohandas Pai has once again raised the startups’ angel tax dilemma, addressing the Finance Minister Arun Jaitley; PM Narendra Modi; Minister of Law and Justice and IT, Ravi Shankar Prasad and Niti Aayog CEO Amitabh Kant.
In a recent tweet, Pai said, “Sir, startups are getting harassed by Income tax officials for raising capital, threatening to consider it as income! Very bad scene and many are angry and upset, may shift overseas. Appeal process broken, takes 15 years. Pls intervene.”
@arunjaitley Sir Start Ups are getting harassed by IT for raising Capital,threatening to consider it as income!very bad scene and very many are angry and upset,may shift overseas.Appeal process broken, takes 15 years. Pl intervene, @PMOIndia @narendramodi @amitabhk87 @rsprasad
— Mohandas Pai (@TVMohandasPai) December 19, 2017
If angel investments, which help startups gain the market value as well as the trust of investors, are like Sanjivani Butis that work as a launchpad for startups in the market, angel investment taxes are truly demonic in nature, given that they increase the chances of a startup pulling down its shutter.
With the government of India launching 50+ startup schemes and initiatives, angel investment tax, a hefty amount of 30.9%, is a huge setback for startups looking for early-stage investments.
What Is Angel Tax And Why Are Reforms Not Effective?
Introduced by former Finance Minister Pranab Mukherjee under the Finance Act 2012, angel tax is applicable on the capital raised by unlisted companies from any individual against an issue of shares in excess of the fair market value. The tax has been classified as ‘income from other sources’ under Section 56 (II) of the Income Tax Act of India.