Startups vs IT Dept, soon. Here's why

Startups are taking a stand against the order they have been served by the Income Tax department. As per the order, they have been asked to pay tax despite valuations being marked down in recent funding rounds and they have decided to challenge it.

Startups are complaining that the move runs counter to the government's campaign to encourage entrepreneurial spirit.

With startup fever having waned over the past year or so amid concerns over profitability and competition, valuations have declined sharply.

Last month, the tax department challenged such reductions at about 100 startups and issued orders seeking 33% tax at the elevated levels that prevailed earlier.

Some startups have moved the income-tax tribunal against the notices while others have approached their advisers and could seek legal recourse in the coming days.

LetsRecycle, an Ahmedabad-based and Aavishkaar Ventures-backed waste management startup, was among those to get the tax demand and has challenged it at the Income-Tax Appellate Tribunal.