Startups have filed a petition through change.org against Angel Tax demanded by the income tax department. The petition was filed by Sreejith Moolayil, co-founder of food brand, True Elements. It will be sent to Union Finance Minister Arun Jaitley to bring government’s attention before the budget session commences next month.
Moolayil took Twitter to mention that how the income tax department wants his company to pay Rs 40 lakh as tax for Rs 1 crore angel round it raised back in 2015.
A founder who is part of the group behind this petition hasn't taken salary in 18 months. #startup is cash positive with a bank balance of just 8L. Now has to pay 80L as tax on angel raised. #savestartup https://t.co/hoFqqwoRkD
— Sreejith Moolayil (@sreejithmoolayl) January 19, 2018
Over the past few years, it has been observed that the number of notices and assessment orders from the tax department contradict the spirit of startup India movement as they are becoming an impediment for ease of doing business in India.
Last year, various startups received assessment notices from the authorities asking them to pay mind-boggling tax on funds they raised.
The petition (link) has asked support from the startup stakeholders as the exorbitant taxation on angel funding is harming the interest of growing startup culture in the country. Importantly, such unnecessary scrutiny also leads distraction for entrepreneurs.
The entrepreneurs requested finance minister to immediately review Section 56(2) and Section 68 with retrospective effect to help them to focus towards scaling startups. The government had introduced Angel Tax in 2012 so that Central Board of Direct Taxes (CBDT) can monitor and question investors as well startups raising angel funds.
Angel tax was introduced in 2012. Under the tax policy, any investment raised from domestic angel investors above the fair value of a venture as determined by the Central Board of Direct Taxes (CBDT) will be taxed as income in the hands of the startup. The applicable tax rate is 30%.
In the past, many entrepreneurs including erstwhile Infosys board member and prominent angel investor Mohandas Pai had voiced his concerns over exorbitant taxation levied on angel funding.
This is a serious concern for stakeholders in the startup ecosystem as well as government. The NDA-led central government has been kicking-off various subsidy and incentives to startups, however, it fails to address glaring taxation issue owing to angel funding.
The development was first reported by The Times Of India.