Need to encourage dwindling domestic VC investment in Indian startups: Amitabh Kant

Batting for incentivising domestic funding in Indian startups, NITI Aayog CEO Amitabh Kant said that the country needs to encourage angel investors not tax them.

In this year alone between January to September, seed stage capital declined by 20 per cent. We need to liberalise the Angel tax provisions to unlock the domestic capital and trigger off a new wave of startup value and job creation, said Kant.

Less than 10 per cent of our VC investments in startups come from domestic investors.

He further said that there should be the removal of Section 56 (2) of angel tax, under which several startups were served notices.

Section 56 leads to disputes on the valuation of a startup, should not be made applicable for startups, he added.

In a tweet, Amitabh Kant suggested all Indian angel investors to register as Accredited Investors for their complete KYC compliance. This can help in domestic investments rising from the current 10 per cent of all startups investments to over 50 per cent over the next two years.

All Indian angel investors can be registered as Accredited Investors for their complete KYC compliance. This can help in domestic investments rising from the current 10% of all startups investments to over 50% over the next two years. This will trigger a new wave of Startups.

— Amitabh Kant (@amitabhk87) December 21, 2018

In the last couple of weeks, many startups complained of receiving income tax notices on angel funding they received.

On Friday, Govt held a meet of revenue secretary Ajay Bhushan Pandey, DIPP secretary Ramesh Abhishek and CBDT chairman Sushil Chandra. They came out with a decision to set up soon to draw up a new framework for recognition of startups including the issue of premium charged by them of their shares.

The development comes after the department of industrial policy and promotion (DIPP) has raised up the Angel Tax issue with the Department of Revenue. It had also said that the bonafide investments in startups will not be taxed for exceeding fair market valuation.

Sources close to the inter-ministerial discussion said that start-ups accredited by the Department of Industrial Policy and Promotion (DIPP) will no longer be asked to pay Angel tax.

Previously, only those start-ups that have been given such an exemption by a government board will be excused, as per the rule.

On the issue of Angel tax, more than 60 startups had complained to the government on the issue as they are levied around 30 per cent premium on investments made by external investors.

Angel tax issue faced by startups got back up from distinguished voices in the Indian startup ecosystem such as Mohandas Pai, Kunal Bahl, Abey Zachariah and Anand Mahindra.