Remove angel tax let startups thrive

Remove angel tax let startups thrive

There are other ways to tackle laundering.

You can’t have your cake and eat it too. Keeping that slice of wisdom in mind, GoI should know that if it’s serious about promoting startups, entrepreneurship and creating more jobs, it should do away with the ‘angel tax’. Its move to provide an easier way for startups to claim exemption from the tax for past and future investments comes with many riders. Startups that receive up to ₹10 crore will be exempt, provided they make an application to the department of industrial policy and promotion (Dipp) and then get a certificate from the Central Board of Direct Taxes (CBDT). Pray, why have an arbitrary cap of ₹10 crore? Startups that want a certificate have to justify the valuation of their shares. This is absurd. It’s difficult to make a valuation of startups as they scarcely have any revenues or profits. The investor should also have a returned income of ₹50 lakh or more in the preceding financial year. Again, this is irrational. But, thankfully, GoI is now committing to address stakeholders’ concerns. It must remove all road blocks to angel and venture capital flowing into startups.

The levy, which was introduced in 2012, treats investment in unlisted companies at a share price deemed to be more than its fair market value as a money-laundering exercise and taxes the premium at 30%. The intent is to check errant promoters from issuing shares at a premium to domestic investors, and using this route to launder their own unaccounted income. However, a good chunk of capital going as tax hurts genuine companies that issue shares at a premium to shore up their capital base. Startups were exempt, but reportedly over 38% received tax notices. It brings down their infusion of funds, and hurts ease of doing business in the country.

GoI can use the general anti-avoidance rules and Aadhaar-linked bank accounts to check if the investment has been made from unaccounted income. It should quickly institute a unique legal identifier system that will make the beneficiary of a company, identified as laundering money, evident.