Startups get a heads-up with angel tax breather, push for rural roots

NEW DELHI: Startups have much to cheer. A series of measures have been introduced to simplify long pending issues like angel tax with the FM saying that startups and investors who provide required documents and information on their tax returns will not be subjected to angel tax scrutiny over value of share premiums. Additionally, a special arm of Central Board of Direct Taxes will take care of pending assessments of startups already facing scrutiny, shielding them from potential harassment from tax officials.

Sitharaman said startups in India are taking firm roots and their continued growth needs to be encouraged. “The issue of establishing identity of the investor and source of his funds will be resolved by putting in place a mechanism of e-verification,” she said.

The government extended the option of not justifying the fair market value or premium paid on shares issued to Category-II Alternative Investment Funds (AIF), which includes primarily private equity funds. This was only available to Category-I AIFs till now.

“The vexed issue of procedures and pricing around startup valuations has been addressed. Startups need to conserve their resources to think big and scale quickly, and any government intervention that facilitates the ease of doing business should be welcomed,” said Flipkart co-founder Binny Bansal, who is also an active startup investor and has also set up advisory firm xto10x Technologies.

While the FM’s announcement could be good news for entrepreneurs and angel investors, it would also mean startups that have already got tax orders from CBDT would not get any blanket relief. Startups that have got tax notices, which is different from orders, would still be able to avail the new relaxations in the policy.

But everyone is not happy as startups also expected a change in rules of employee stock option plans (ESOPs) getting taxed at sale instead of at the time of exercising them right now, according to Aarin Capital chairman Mohandas Pai. “As far as startups are concerned, there is a lot of rhetoric and talk but very little incentives. Stopping harassment in angel tax is not an incentive,” he said. Pai has been actively involved in the issue of angel tax for over a year.

Government is also looking to boost entrepreneurship in the rural and agriculture sector at a time when there is an increasing investor interest in agriculture technology space with startups like Agrostar, Ninjacart, Stellapps and CropIn attracting capital.

Sitharaman also said a television channel will be created within the Doordarshan bouquet of channels exclusively to promote startups, discuss issues affecting their growth, connecting them with venture capitalist for funding and tax planning. This channel shall be designed and executed by startups themselves, she added.