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Budget 2018
Last Updated : Jan 19, 2018 07:50 PM IST | Source: CNBC-TV18

Budget 2018: Taxman comes knocking; start-ups launch a petition against angel tax

The Budget 2018 is upon us and start-ups in India have one key demand - clarity on taxation. Over the last few weeks, a slew of companies has been hit with tax notices. Most of these cases relate to fund-raising by start-ups from friends and family and individual angel investors or domestic angel networks like the Indian Angel Network (IAN) or Mumbai Angels who are not registered with Securities and Exchange Board of India (SEBI) as AIFs or alternative investment funds.

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The Budget 2018 is upon us and start-ups in India have one key demand - clarity on taxation. Over the last few weeks, a slew of companies has been hit with tax notices. Most of these cases relate to fund-raising by start-ups from friends and family and individual angel investors or domestic angel networks like the Indian Angel Network (IAN) or Mumbai Angels who are not registered with Securities and Exchange Board of India (Sebi) as AIFs or alternative investment funds.

At the core of this issue is the ‘angel tax’ clause introduced in the income tax act in the 2012 Budget to crack down on allegedly illicit transactions.

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According to this clause, the tax man is free to treat an investment made into a start-up as income if it exceeds the company's fair market value. The taxman argues that funding above market value should be considered income and asks why would anyone make a higher investment in a company if the value of assets is much less?

Companies argue that valuations are subjective - there are different methods to calculate valuations especially for technology start-ups where fixed assets are mostly just laptops and computers, the value of which is nominal at best. What investors take into account when arriving at a valuation are intangibles like the 'tech disruption', the market size, growth rate, etc and it might very well be that in some cases the eventual performance does not match the initially projected valuation.

Now, more than 20 start-ups led by Sreejit Moolayil of True-Elements, an entrepreneur who raised this issue with us a few weeks ago on the channel, have launched an online petition on change.org against the 'angel tax'. The petition will be delivered to Finance Minister (FM) Arun Jaitley next week if they managed to gather enough support.

In an interview with CNBC-TV18, start-up founders Mohammed Ali, CEO, Primaseller; Nikunj Bubna, Director & CEO, SwingR, Angel Investor, Dr Aniruddha Malpani who has been slapped with an income tax notice too and Nakul Saxena from iSPIRT who is going to take this petition to folks at the finance ministry for consideration, Shashishekhar Chaugule, Partner at Walker Chandioke and Vidhya Shankar, ED at Grant Thornton India discussed about the same.

For entire discussion, watch accompanying videos...

India Union Budget 2018: What does Finance Minister Arun Jaitley have up his sleeve? Click here for live Budget 2018 news, views and analyses.
First Published on Jan 19, 2018 07:29 pm
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