Startups launch e-petition against I-T dept’s angel tax

A group of entrepreneurs has started a petition on Change.org against the ‘angel tax’ being demanded by income tax authorities, especially in the past year. The petition says it is on behalf of hundreds of startups in India which are distressed by a spate of notices and assessment orders from the I-T department and which contradict the spirit of the Startup India movement as they are detrimental to ease of doing business in India.

Many startups received assessment notices and orders in 2017, asking to pay a sizeable portion of funds raised as income tax. The petition will be delivered to the country’s finance minister Arun Jaitley.

“We seek support from everyone in the ecosystem to sign this petition so that we can focus on growing businesses and enabling wealth creation for everyone, including our country without having to constantly look behind our backs, worrying about unsubstantiated scrutiny. We request honourable finance minister to strongly review Section 56(2) and Section 68 with retrospective effect to help us focus in building our startups,” the petition added. The petition was started by Sreejith Moolayil, co-founder & COO, True Elements, a food startup.

The controversial angel tax was introduced in 2012, but it is only over the past year or so that the Central Board of Direct Taxes (CBDT) has been monitoring it and questioning investors. Under the tax, any investment raised from domestic angel investors above the fair value of a venture as determined by the CBDT will be taxed as income in the hands of the startup. The applicable tax rate is 30%. Prominent angel investors — like former Infosys board member Mohandas Pai — have publicly raised their voice against such developments.

TOI reported last year about several startups facing similar issues with tax authorities. Many founders have expressed to TOI about such tax demands going against the government’s muchpublicised Startup India programme. PM Narendra Modi, over the last two years, has been launching multiple initiatives to boost entrepreneurship to help create jobs.

“We raised an angel investment for NexGear back in 2015. Now the income tax department is sending us notices to pay 30% tax on the raised angel investment, qualifying it as an income of the company. There can be nothing more discouraging than this,” said Amardeep, co-founder, NexGear, a Mumbai-based startup that develops wearable technology devices.