Indian government to take a stand on angel tax within a week

Angel tax has been a big issue in the Indian startup sceneReuters
  • The Department of Industrial Policy and Promotion held a roundtable meeting with industry leaders on February 4.
  • A working committee has been assigned to resolve the issues related to angel tax.
  • According to a survey, 73% of Indian startups have been served with angel tax notices.
The Indian government is reportedly all set to take a decision on the angel tax issue that startups and investors alike have voiced against – within the next week.

The step is expected to bring clarity to the country’s early stage entrepreneurs who say the rule has hurt their funding prospects.

On Monday, the Department of Industrial Policy and Promotion (which recently got upgraded to be the Department for Promotion of Industry and Internal Trade) held a roundtable meeting with industry leaders from the Indian startup ecosystem to work on providing solutions for the angel tax issue, together.

The meeting which was held with Indian Private Equity and Venture Capital Association (IVCA), angel investors and other leaders, saw the government take support from industry bodies to understand and implement changes that will be accepted by all.

“We will form a smaller working group to come out with certain suggestions on resolving those issues in the next four-five days,” said Ramesh Abhishek, DIPP Secretary to the media.

The angel tax issue had stirred up again after several startups were sent notices for the same. According to survey done by the IVCA, 73% of startups in India received Angel tax notices.

However, the DIPP secretary has said that no coercive action will be taken against these startups.

In the last month, the government had introduced changes to tax laws under the Section 56(2) (vii b) of the Income Tax Act that will exempt ‘genuine’ investors in startups which are recognised by the DIPP. Till date, 15,278 startups have been recognised by the DIPP, while 129 startups have been funded under the Startup India program.

Since the tax was introduced in 2012, Indian startups have claimed it has slowed down the funding at earlier stages because of the high tax rate. There have been several calls from the startup industry to remove the tax completely.

The angel tax was added by the Indian government to prevent money laundering, however, over the years, entrepreneurs believe it has only become a hurdle in the funding stages.

Siraj Dhanani, Co-Founder and CEO, InnAccel Technologies – which is into medtech manufacturing, told Business Insider previously, “Raising capital for startups working on affordable healthcare is already difficult, it is made more so by this angel tax, which is effectively a tax on Indian innovation."

See Also:
Indian government just added a lot more red tape for startups while trying to fix the devilish ‘angel tax’

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