Over 70% startups got Angel Tax notices raised capital between Rs 50 lakh to Rs 2 Cr: IVCA

If there is one thing that has been a constant pain in the neck for the startups- it has to be punitive Angel Tax.

The interim Budget was presented last week. Startups were hopeful that the govt will address the issue and provide some respite for them.

But nothing of that sort happened. Now, startups, despite the Commerce ministry assurance, are as clueless about the Angel Tax as they were before.

To better understand the impact of the angel taxes on startups, the Indian Private Equity and Venture Capital Association (IVCA) and LocalCircles conducted a survey which received 2.5k responses from entrepreneurs.

The survey questions mainly included three components- how many angel tax notices they receive to date, Under which section did they receive the notices and what was the total amount that was questioned.

As per the survey, about 45 percent said they got 1-2 notices whereas 28 percent said they received 3 or more notices. Around 27 percent said they did not receive any notice.

Angel tax

More than 70 per cent startups got notices under section 56(2)(viib) while 6 percent got it under section 68. About 24 percent of startups said that they got notices under both sections. About the total amount of funding being questioned, 73 percent of startups said it was between 50 lakhs and 2 crores, 17 percent said it was between 2 crores and 10 crores.

Only 4 percent were questioned, who raised over Rs 10 Crore.

The data pertaining to startups, angel networks, and VCs brings more clarity to the angel tax issue, said Rajat Tandon, President, IVCA.

However, the persistent questioning and notices have led to slow down in angel investment activity. Despite the Startup movement is on the rise and number of angel investors have increased, funding has seen a downward trend. After 2016, the angel investment has gone down.

Angel investment is early stage fund that helps startup stand on its feet to fight competition and survive in the market. Currently, startups are levied around 30 per cent Angel Tax on investments made by external investors.

IVCA, which claims to have about 150 PE, VC and other funds members in its portfolio, had requested the Govt to give blanket exemption o exempt Rs 10 crore to all registered startups.

Last week IVCA had met with the finance ministry, where it was asked to find out the issue that is troubling startups majorly in India.

Today, the govt in a round table discussion is scheduled to talk about the concerns on tax exemptions to startups, investors, industry bodies such as IVCA and iSPIRT and Income-Tax department.

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