Budget 2019-20: Easing of angel tax scrutiny cheers startups

If you are looking to fund a startup venture, maybe this is the right time. Finance minister Nirmala Sitharaman made it clear during her maiden Budget speech on Friday when she announced proposals for easing the angel tax regulations in the country.

In what would be a relief to the startup community, Sitharaman said startups and its investors who file requisite documents and provide information in their income-tax returns will not be subjected to any kind of scrutiny in respect of valuations of share premiums. She further added that the issue of establishing the identity of the investor and the source of funds will be resolved by putting in place a mechanism of e-verification. “With this, funds raised by startups will not require any kind of scrutiny from the income tax department,” she said.

Experts feel the government’s proposals is much needed to fuel growth of startups in its initial years.

“The draconian devil tax has been comprehensively addressed including some relief for pending cases that were causing lot of angst. One of the best moves is the delinking of calculation and the justification of share premium since deciding a premium is not an exact science, and it is impossible to justify,” said K. Ganesh, partner, GrowthStory, one of India’s largest entrepreneurship platforms, which promotes and runs startups.

“Now, only the identity of the investor and source of income needs to be proven. This is fair and a straight-forward process. Having supervisory approval of the assessing officer is welcome as it will reduce arbitrariness and prevent unwanted harassment,” adds Ganesh.

Deena Jacob, co-founder, CFO, Open, a Bengaluru-based startup, concurs. “Finally, a strong message on the scrutiny on angel tax is a welcome move which will open up capital source for early-stage ventures. However, the implementation part including the details of the verification mechanism will be the key to its effectiveness,” said Jacob.

While presenting the Budget for 2019-20, Sitharaman said that to give impetus to startups, the Central Board of Direct Taxes (CBDT) would make “special arrangements” for pending assessments of startups and redressal of their grievances. “It will be ensured that no inquiry or verification in such cases can be carried out by the assessing officer without obtaining approval of his supervisory officer,” she noted.

However, Vinamra Pandiya, founder and CEO, Qtrove.com, feels it is too early to see an impact of such announcements. “We have to see how CBDT and assessing officer interpret this and help hundreds of startups already reeling under its after-effects. While the intent is welcome, we will hold our horses before corking the bubbly,” added Pandiya.

Experts feel the government’s proposals to start a television programme within the state-owned DD National’s bouquet of channels exclusively for startups, is a move in the right direction to boost the startup culture in the country. “The plan to launch a dedicated television channel for startups that will disseminate vital information related to funding and various other operational areas for us is a very encouraging step. The government is also aiming to bring about gender parity in the Indian startup ecosystem by further encouraging women-led enterprises,” said Dhiraj Agarwal, CEO and co-founder, Campus Sutra, a startup fashion brand. Adds Sandipan Mitra, CEO and co-founder of HungerBox, a Bengaluru-based B2B food-tech startup: “The Union Budget clearly gives a boost to the entire startup community. The need of the hour is a platform for budding entrepreneurs to learn from successful ones. A dedicated television channel is a brilliant idea. However, I hope the content is well researched to meet the needs. This can turn out to be the biggest game changer for ideation and execution.”