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Rahul Gandhi's promise to scrap angel tax a little too late, says startup sector

Only last month, the current government widened the definition of a startup, making it smoother for investors to put in their money in these companies. The government also increased the age cap for startups from 7 to 10 years.

March 29, 2019 / 06:20 PM IST

The startup industry does not seem to be very impressed with  Congress President  Rahul Gandhi's promise to abolish angel tax given that a lot of work to reform it is already under progress.

Many investors and industry experts say that there has been a late awakening of Rahul Gandhi on this issue.

"The problem has already been solved. I got my exemption the day before Holi and so did about 200 other startups in the last 10 days. Had he made this statement in December or January this year, he would have found takers," said Sachin Taparia, founder of LocalCircles, the community media platform.

Also read | Angel tax: Govt widens startup definition, makes them easier to invest in

Rahul Gandhi on March 29 promised that if Congress came to power he will ensure that new ventures do not require any regulatory permissions for three years and that angel tax gets removed.

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However, only last month, the current government widened the definition of a startup, making it smoother for investors to put in their money in these companies. The government also increased the age cap for startups from 7 to 10 years.

Under the IT Act, Section 56 (2) (viib) money invested by angels in a company is treated as income from other sources.

Also read: Angel tax reforms: Chance for startups to capitalise on new opportunities

Many startups who raised angel investments in assessment year 2015-16 and 2016-17 received notices from the Income Tax department under this Act. These startups raised objections which led to the the movement in the government corridors.

As the per new notification, even the investments into startups by non-residents, alternate investment funds- Category I registered with SEBI will be exempted under Section 56(2)(viib) of Income Tax Act beyond the limit of Rs 25 crores.

Lauding the initiatives of the Narendra Modi government, founder of angel investment network LetsVenture said that the entire startup industry got visibility only after 2015 when Modi announced the Startup India initiative.

"When the Startup India movement came up and there was a lot of support from the government towards entrepreneurship. The government has been systematically solving some of the issues which have been raised and it (angel tax) has been almost resolved," she said.

However, Mohan added that a complete abolition of angel tax would be a welcome move irrespective of which government comes to power. "If it happens it will be great for all of us and it will invite a lot more investment in the startups. I know personally that there have been a lot of people who have stopped investing because finally after you get an exit you pay back so much of tax that they think it is not worth getting into," she said.

Many startups however still welcomed the statement of Rahul Gandhi. According them, the fact that political parties are talking about startups and the issues pertaining startups instead of caste and religion is in itself a big achievement and a promising step.

"The fact that Congress if recognising entrepreneurship and startups as an important sector to make promises on what they can do for the sector is very heart warming. Because till now in every election everything used to be about things like cast, reservation etc. It is nice to see that both the parties have put startup in the forefront of their policies. It is a welcome move because startups is the industry which creates jobs," said K Ganesh, serial entrepreneur and partner at GrowthStory.

Interestingly, the angel tax was introduced during the tenure of the United Progressive Alliance (UPA) by the then finance minister Pranab Mukherjee in 2012 to tackle the issue of money laundering through high premiums on shares.

 



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first published: Mar 29, 2019 05:11 pm
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