The government has taken due cognizance in the matter of harassment of startups by Income Tax officials. Union Minister Suresh Prabhu tweeted later in the day that the Commerce and Industry Ministry “has taken up the issue of angel tax”. The Ministry of Commerce and Industry has taken the issue of ‘notices by Income Tax authorities to Angel Investors/Start-ups’. “DIPP has again taken up this matter of issue of IT notices with the DoR so that there is no harassment of Angel Investors or Start-ups. Government is committed to protecting bona fide investments into start-up,” said a press note released by the ministry.
An expert panel with experts from IITs and IIMs will be constituted to look after the issue and no tax demand will be made by apex direction taxation body until the panel comes with a solution to taxation on startup. “CBDT recognizes that startups are going to bring a lot of innovation to the country and, therefore, have to be supported in every possible manner,” said the statement released by CBDT.
The IT department officials have shown pro-active stance because it was found that some people are converting the black money into white in the name of investment in startups. It was also found that investments in startups were being used for tax evasion. But many genuine startup founders and entrepreneurs had to face problems and were harassed by IT officials in the name of pro-activeness. So, in the last few months, entrepreneurs were complaining of tax terrorism of similar kind that was prevalent in the UPA era. “It is a big issue among new-economy companies. Many startups have received tax notices. They are struggling with it as they have little cash flow,” said Girish Vanvari, founder of advisory firm Transaction Square. The government took quick action and has decided to form a panel in order to solve the problems of the entrepreneurs as it is committed to the cause of ‘Startup India’.
Earlier, the government granted tax exemption to the startups recognized under Startup India initiative. The investment received from venture capital funds angel investors, or high net worth individuals was also exempted. Although tax exemptions were bound to certain riders that omitted only a small part of the investment ecosystem. The experts advised the startups to get registered relevant ministries to avoid IT notices. “The startups are advised to get themselves registered with DIPP vide ministry of commerce and industry notification dated April 11 to avoid scrutiny from the tax department and ministry of corporate affairs in the light of the recent notices sent by MCA as well,” said Amit Maheshwari, partner, Ashok Maheshwary & Associates LLP.
Modi government is one of the most startup friendly governments India has ever seen. The Modi government launched two programmes named Startup India and Standup India to encourage young entrepreneurship in the country. There are three pillars of Startup India which include, simplification and hand-holding, funding support and incentives, industry-academia partnership and incubation. The government launched Pradhan Mantri Mudra Yojana to give low-interest loans to entrepreneurs from an underprivileged background. The other programme, Standup India is similar to Startup India but it is focused to support entrepreneurship among women and SC & ST communities. Startup India was launched in August 2015 while Standup India was launched in April 2016. The government is also working towards setting up a mechanism called SETU (Self-utilization and Talent Utilization) to provide technical assistance and incubation to startups. Apart from this, it is planning to ease out the existing regulatory regime for startups and to extend tax incentives to them.
