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Budget 2020: Devil in the details on angel tax, say Pune startup investors

By Namita Shibad
UPDATED ON JAN 29, 2020 05:34 PM IST

What the startup ecosystem expects from Union budget 2020 (due on Feb 1)

“Last year, we saw a simplification of the angel taxation process. However, it is still far from streamlined and is slowing down initial capital investment in the system, exactly when startups need it the most. It will be interesting to see if the government decides to scrap the angel tax entirely. Lesser tax compliances will help attract more angel investments to startups. Even if the angel tax is in place, the mechanism for e-verification should be regulated to eliminate excessive or unwarranted tax scrutiny around funds raised by startups. Instead of continuing with the previously set 45-day evaluation, alternatives like direct bank transfers and conducting KYC can help eliminate money laundering activities. This will act as a catalyst in driving investment towards our startup segment and promote cutting-edge technological solutions. Easing or abolishing filing requirements for early-stage startups can help kickstart their business smoothly.”

- Bala Parthasarathy, CEO and co-founder, MoneyTap.

“The previous year’s budget had eased the norms of the infamous angel tax, bringing much-needed respite for angel investors and startups alike. However, there remain many grey areas that should be addressed on priority. At present, only recognised startups are exempt from angel tax, but MSMEs operating from rural areas are still bearing the brunt of this unfair taxation system. Moreover, some of the new conditions effectively restrict startups from investing in shares and securities. Given how most startups tend to grow their capital through investments in mutual funds, it seems like the classic case of one step forward, two steps back. We expect the government to bring further amendments to the angel tax.

- Apoorva Ranjan Sharma, president and co-founder, Venture Catalysts

“At the outset, thanks to CBDT (Central Board of Direct Taxes) and DPIIT (Department for Promotion of Industry and Internal Trade), for laying the ghost of angel tax to rest last year. However, in 2020 we truly hope this game changer policy can be percolated across CBDT’s officers so that the intent plays out the ground and certified startups don’t get impacted by Sec 56 ii(viib).”

Padmaja Ruparel, founding partner, IAN Fund

“As start-ups have been viewed as key drivers of the economy, we are hopeful that relief from angel tax will be given without further delays. To the same end, scrutiny notice should also be withdrawn and if in case any penalty has been paid, the same should be reversed. We also foresee certain problems with the implementation of the angel tax, since it is limited only to the DPIIT-registered firms. However, start-ups that are not DPIIT-registered will miss out on the benefits of angel investments. Furthermore, we may also include tax provisions for friends and families not categorized as angels and have backed non-DPIIT-registered start-ups.

Nischal Shetty, founder & CEO, WazirX

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