Resolving the issue of Angel Tax for startups
On the DIPP notification issued on angel tax, it is suggested that the following amendments be made at the earliest:
1) The 10 crores limit for share premium to avail exemption be increased to 25 crores. There are many startups in India that Venture Capital is unable to fund. These include businesses that will help reduce pollution, make clean water available, recycle waste or improve women & child safety. Such startups require significant capital and High Net worth Individuals, Family Trusts and Corporates need to be able to fund them.
2) The restriction of an investor having an income of 50 lakhs AND net worth of 2 crores needs to be changed to income of 25 lakhs OR net worth of 1 crore. This will allow retired professionals, NRIs, more friends and family to be able to participate in a startup. It is only when a large number of SMEs, HNIs with tax paid income participate in startups, right in their own city, will we have a true Startup India movement.
3) Change the definition of a company to be qualified as a Startup from 7 to 10 years. Many startups who started in 2010-11, raised capital in 2015-16 are now faced with a tax notice and cannot even register for becoming a DIPP recognised startup as the window closes at 7 year mark. Given how difficult it is in India to raise funds and establishing a business, 10 years is a reasonable time period to be qualified as a startup.
4) Response within 45 days or Deemed Approval - To ensure that startups don’t wait for ever, once a startup submits its documents for exemptions, either the Startup should be given a response within 45 days or it should be considered as deemed approval.
5) CBDT must ensure it has the bandwidth and staff to grant exemptions via a staffed secretariat as once the process opens thousands of startups may seek approval. The approval process must be centralized and NOT go to the assessing officer where the startup is registered. Clarity is needed on this front.
6) The details and documents required from startups should be further rationlalised so the entire approval becomes process oriented with minimum room for approver discretion.
7) Investors should be required to upload their tax return and net worth documents only once in a financial year and the startup they are invested in could use their reference number when applying for exemptions.
Please share your inputs on what else should be done to make the latest angel tax exemption model proposed by DIPP work effectively for startups.
All said and done, the above approach may still have gaps and that is precisely why the permanent solution as demanded by startups would only be blanket exemption for all DIPP recognised startups (addl documentation furnished) then starting from the other end.
Welcome everyone’s inputs so when we meet the policy makers next week, all aspects and inputs can be considered.
Sachin Taparia more