Taxed for being an ‘angel’? Several start-ups won’t benefit even as angel tax is revoked, say experts

Even though the government has decided to repeal the controversial 'angel tax', experts believe that a number of start-ups will not be able to benefit from this because of the additions in the new regulation.

'Angel tax' is the tax that the government planned to levy on investments in start-ups; however, since it was considered regressive by many and the fact that it led to many start-ups exiting from the country, it was decided to be amended.

However, start-up experts think that it will still continue to pester start-ups, given that the amendments ask to exempt only those firms that have been classified as start-ups under the new government regulations, which means that only the start-ups stamped from the Inter-ministerial Board of Certification should be exempted from the tax.

For this stamp, start-ups needs to fulfil several criteria like, the company should not be more than five-year old, it should not have turnover exceeding Rs 25 crore, tit should be working towards innovation and commercialisation of new products or services, and it should be driven by technology or intellectual property.

Of course, several start-ups are yet to go for this certification.

Also, the fact that the new regulation will not apply to retrospective investments also leaves many start-ups open to be questioned by tax authorities.

"It will definitely have a positive impact but it is not a complete but a partial solution," Saurabh Srivastava, cofounder of Indian Angel Network, told ET. "For all angel investments that were made in the last few years ever since the Section 56 came into being, the start-ups and angel investors are today being harassed by income-tax authorities which have opened up their investment records. This is not a good scenario and is upsetting angels," he said.

Srivastava is in talks with the government so that there is a way to certify angel groups, which would mean that investments made through them will be exempted from taxation. "This will be the next logical step and would solve 99 per cent of the problem," he said.

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