Start-up companies in India are not satisfied with the central government's concession on angel tax. Start-ups need to take concrete steps to speed-up.
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The Government of India has launched an ambitious scheme called "Start Up India - Stand Up India" from January 16, 2015. The new Indian companies that came forward under this scheme were eager to start business. But over the past few months, these companies have been well-funded by the Angels Tax and other oppressive government laws. The government has assured that under Section 56 and 68 of the Tax Recovery Act, those who invest in such start-up companies (Angel Money) will not be harassed by the Income Tax Department.
But at present, more than 70 per cent of the start-ups in India that have raised capital to avail of the government's scheme have received some form of notice from the government's tax collection department. So at the moment, the picture is that the relief being shown to these new entrepreneurs by the government is only modest.
To give an example of an angel tax scandal, there are two great start-up companies called Travelkhana and Babygogo. The Central Board of Direct Taxes (CBDT) recovered fines of Rs 33 lakh and Rs 72 lakh from these companies for non-payment of angel tax. This recovery has left both companies destitute.
Angel tax is a tax paid by start-up companies that have raised capital for their company from the stock market. Also, if the shares of such a company are sold at the current market price and not at the original price, then the excess amount paid by the investors is treated as angel tax on the income of the company. Only in India does a separate tax system exist where such capital investment is taxed as the earnings of any company.
Similarly, tax collection practices in India show that tax officials evaluate the professionalism of any company like an investor. But they cannot be responsible for determining the assessment according to the law.
The start-up companies claim that CBDT has done the same thing in the case of the above companies. According to the companies, they were not given enough time to file any objection or file a clearance after the notice was sent. The CBDT, on the other hand, said in its press release that the certificate required by the Department of Industrial Policy and Promotion to be a start-up company was not originally submitted in the case. Similarly, the CBDT later stated that a satisfactory explanation was not available regarding the cash credit of the amount recovered as penalty from the accounts of these companies.
Of course, according to a notification issued by the government's tax collection department on December 24, no immediate legal action will be taken against start-up companies to which tax notices have been sent. But since these companies could not prove their claim to be start-up companies, the tax authorities recovered the fines from the accounts of those companies without heeding the notification.
As a result, the move has sparked outrage among most investors and businesses setting up start-up companies in India. All of them have expressed their desire to go to a different country like Singapore and set up their own business. This, of course, calls into question the Indian government's policy of promoting trade.
In a recent interview, Prime Minister Narendra Modi had reassured the business community that they should look at the new economic development in India from a new economic perspective. Similarly, the current Union Finance Minister Piyush Goyal has said in Parliament that start-up companies that raise capital through legal channels will not be bothered by the government.
Despite all this, the government's promise to look at these new companies from a new economic perspective has yet to materialize. Similarly, in the interim budget recently presented by the government, start-up companies do not seem to be getting any relief.
Despite all these obstacles, there is no doubt that the steps taken by the government through the Start-up India scheme, Atal Innovation Mission and some other similar policies to enable new companies to start small businesses are also important.
But despite all this, there is an atmosphere of dissatisfaction with the government's policies among the newly emerging start-ups. Therefore, the government should consciously focus on regaining the trust of all these small businesses. And for that, many believe that the government should take the next step.
- The system of fixing or changing policies on start-up companies should now be scrapped by the Council of Ministers of the Central Government.
- The practice of allowing start-up companies through DPIIT should also be stopped now, as the market valuation of such companies is underestimated.
- Notifications of tax concessions to these companies under sections 56 and 68 of the Tax Collection Act should be received through DPIIT and CBDT as soon as possible.
- Some attention should be paid to how start-up companies can get maximum tax relief through CBDT.
- The central government's budget should remove the difficult rules imposed on start-up companies for raising capital and also give some relief from angel tax.
- Under section 10, start-up companies should get full tax exemption for the first five years.
In the case of start-up companies, if the government takes these steps, such businesses can make the most of it and the government's start-up plan can be better implemented.
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