Angel Tax ghost: Startups asked to pay tax by March-end

The ghost of Angel Tax seems to have reappeared again to haunt startups in the country. Despite a week after government intervention, the tax authorities have issued demand notices to startups asking them to pay angel tax by March-end.

In the notices, the authorities have demanded exact amount startups are required to pay, according to startups who got notices.

As per the tax experts, CBDT order last week to tax officers was only to not take coercive measures to recover the outstanding amount form the startups. It does not stop the process to take its course and assess their valuations.

Taxman has continuously raised questions over inconsistent valuations of startups. In many cases, it claimed to have found revenue and businesses going down but their valuation kept rising.

Startups are asked to pay tax on the amount that is considered above fair value valuations, which is primarily evaluated on the basis of discounted cash flows.

They are levied around 30 per cent angel tax on investments made by external investors. The tax officers also claim to curb money laundering through the move. Paying a high amount in investment when the real value is much less warrant a close look into the investment, said a tax officer to ET.

Startups do not find this practice in their favour. Earlier, a group of over 60 startups had complained to the government on the issue of Angel tax. They got back up from prominent voices in the Indian startup ecosystem such as Mohandas Pai and Kunal Bahl.

Taking note of the issue, Suresh Prabhu said to have been looking into the matter. Ten days ago, the govt said that it would constitute an expert panel on the matter and no coercive action against such startups will be taken until it resolves.

It further said that the expert panel will also make a recommendation on individual cases of recognised startups to DIPP on the above issues pertaining to the startups. DIPP will issue a notification in this regard.

However, nothing has changed at ground level for startups. They still remain caught up between govt departments in absence of amendment in angel tax rule.

The new year may have arrived for everyone but startups.