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Angel Tax

#Budget2019 keeps 200 startups still hanging on draconian Angel Tax

Angel Tax

Finance Minister Nirmala Sitharaman presented her first budget on Friday. While presenting the budget, the Finance Minister almost brought the word ‘Startup’ into the mainstream as she mentioned the word about 16 times during her presentation.

For the first time, it seemed that the budget has its task cut out to resolve all the issues plaguing startups- mainly Angel Tax.

But the FM proposals ignored long pending Angel Tax resolve wishes from startups.

Sitharaman proposed that startups and their investors who file requisite declarations and provide information in their returns will not be subjected to any kind of scrutiny in respect of valuations of share premiums.

She further added that Special Administrative arrangements shall be made by Central Board of Direct Taxes (CBDT) for pending assessments of startups and redressal of their grievances.

“It will be ensured that no inquiry or verification in such cases can be carried out by the Assessing Officer without obtaining approval of his supervisory officer”, she added.

This means If a startup needs to raise an angel tax exemption it needs approval from senior officers. And in case the startup already has got an order it needs go to committee, which will decide whether an exemption is applicable to startup or not.

At present, the angel tax exemption is only for startups, which has demand order after the issue of Feb 19 DPIIT notifications. As per the notification, there has been no exemption from tax retrospectively only prospectively. If an assessment order of a startup has been done before DPIIT notification, then it won’t be exempted.

“The order does not talk about the retrospective effect of angel tax exemption,” said Sreejith Moolayil, Founder of True Elements.

Angel tax issue has again gone back to what it was prior to the February order, he added.

Earlier, startups had to apply to the inter-ministerial board for exemption.

“The govt must take out clause mentioned in CBDT notification issued in January 2019 that says once an assessment officer has passed an order the entire angel tax notification is out of scope,” said Sudhir Mody, Founder, and CEO of Maximmojo.

If a startup is certified by the CBDT, why should assessment officers opinion get a greater weight, he questioned.

Startups, who are already facing the Angel Tax issues, are still hoping that the govt will look into it and address the issue pointedly.

“This is only the future looking move. What about those who have already got demand order and still facing Angel tax issues”, asked Ashish Chaturvedi of School Dairy, who has been facing angel tax issues for the last two years.

Ashish’s startup is slapped with tax penalties and its TDS returns are getting adjusted against the outstanding demand even while the appeal is in progress.

“How does a startup survive or focus on its business when you are disturbed and harassed by angel tax,” added Ashish.

This is not the first instance where the govt has chosen to ignore the genuine problems of existing startups. In February this year, Travelkhana and Babygogo accounts were frozen by the IT department on the angel tax issue.

In both cases, coercive actions were taken by freezing their bank accounts and withdrawing money despite assurances from the government that no such action would be taken.

There are close to around 150-200 startups, who were at the forefront of raising the angel tax issues, are facing the same issue. Most of them are either waiting for CIT appeals or their exemptions appeals have been rejected.

The budget just did not have any mention of remedy for these startups.

Startups also complained that the govt had taken a U-turn from its promise made in the Feb 4 meeting that it will resolve the angel tax issue completely.

“We hope that govt will take steps in the right direction and help startups grow in India instead of creating roadblocks and forcing them to go abroad,” said Ayush Bansal, Founder, and CEO of iDreamcareer.

Several progressive nations including the US, China, and Singapore incentivise startups by easing regulations and providing a supportive environment to them.

This is high time that the Indian govt join the league of the progressive nations by taking the issue of Angel tax and do away with completely.

A half measure never wins you anything. At best it can get you praise from one or most two quarters. But never allow you to write your own history through implementing right measures. The current government has this opportunity in their hands.

And they have shown the intent. Will they go all the way? Sadly, it still remains a question.

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