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ANGEL INVESTMENT

ANGEL INVESTMENT:

Angel Investment means investment in equity shares of startup companies by investors. Such investors who invest in the equity shares of startup companies are called Angel Investors. Angel investors are essentially the well-heeled individuals/firms/companies who used to form a group of investors for investment in startup companies or small entrepreneurs.

PROVISION OF ANGEL TAX

The provision of Angel Investment Tax was introduced in the Union Budget of 2012. Under existing rules, funds raised by an unlisted company through equity issuance are covered under this tax to the extent the amount raised is in excess of the fair market value. Such extra inflow was taxable as “income from other sources” under Section 56(2) of the Income-Tax Act, 1961 (IT Act) and charged the corporate tax rate, resulting in an effective tax of over 30%.

Section 56 of the IT Act, 1961 confers on tax authorities the power to levy excess consideration, more than the fair value, against issue of shares. Section 56 (2) (viib) of the Income Tax Act states:

“Any consideration received by a company (startup) from a resident, against issue of shares, exceeds the fair market value of such shares; such excess consideration is taxable in the hands of the startup, as an income.”

Therefore, under Indian tax law, if an Indian company receives share subscription amount from an Indian resident which exceeds the fair value of shares, then the excess amount is taxed as income of such Indian company.

EXEMPTION OF ANGEL TAX

The Government of India had, now as an initiative to promote start ups, scrapped the so-called ‘Angel Investment Tax’ on investors providing funding to startups.

The Central Board of Direct Taxes vide Notification1 dated June 14, 2016 (CBDT Notification) had made the required changes in Section 56(2)(viib) of the Income- Tax Act, 1961 exempting startups raising funds from angel investors.

It may be noted here that for the purpose of this CBDT Notification, “startup” shall mean a company in which the public are not substantially interested and which fulfills the conditions specified in the Notification2 of the Government of India, Ministry of Commerce and Industry, Department of Industrial Policy and Promotion (“DIPP”), number G.S.R. 180(E), dated the 17th February, 2016, published in the Gazette of India, Extraordinary, part II, section 3, sub-section (i), dated the 18th February, 2016.

As per Notification of DIPP dated February 17, 2016 an entity is considered as a ‘startup’-

  1. Up to five years from the date of its incorporation/ registration;
  2. If its turnover for any of the financial years has not exceeded Rupees 25 crore; and
  3. It is working towards innovation, development, deployment or commercialization of new products, processes or services driven by technology or intellectual property;

Provided that any such entity formed by splitting up or reconstruction of a business already in existence shall not be considered a ‘startup’. It is to be noted that under the said Notification of DIPP, clarity has been given as to what will qualify as innovation, development, deployment or commercialization.

Accordingly, a firm/company would be considered a start-up if it is incorporated or registered in India not prior to five years, with an annual turnover not exceeding INR 25 Crore in any preceding financial year and at the same time, it should be working towards development, deployment or commercialization of new products, processes or services driven by technology or intellectual property. Further, Startups would need to get a certificate from the Inter-ministerial Board of Certification to get the status of startup.

Therefore, investment in every startup is not eligible for the exemption and only such startups which fulfill the conditions specified by the DIPP, as mentioned herein above, are eligible for exemption from Angel Investment Tax. Further, the said exemption will not apply to retrospective investments.

CONCLUSION

The exemption of Angel Investment Tax for specified startups is a step forwards in implementation of Startup India programme initiated by the Government of India. Due to high tax rate on Angel Investment in India the investors usually hesitate in making investment in such startup companies.

This affects the economic growth rate of the country as well. Now the eligible startup companies need not have to pay Angel Tax even if it exceeds the fair value of shares. This will benefit the resident angel investors as well which are not registered as venture capital funds with Securities and Exchange Board of India.

Although removal of Angel Tax will not benefit all the startups because of the stipulation attached in the Notification of DIPP i.e. only those start ups which have a certificate from the Inter-ministerial Board, fulfill criteria like not being more than 5 years old, turnover not exceeding INR 25 Crore, working towards innovation & commercialization of new products or services and driven by technology or intellectual property, will have the benefit and accordingly, such exemption would be welcomed by the investors as well as by the startup companies which needs such investment.

This will promote the investment in India and definitely provide a huge relief to angel investors and eligible startup companies.

VidyaSunil & Associates is into practice of Tax Complaince, Audit, Accounts , Corporate / Business Finance & Outsourced CFO Services.

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Home Startup Resource Top 7 Things The Ministry of MSME Has Done in 2016 To Help Startups and MSMEs in India

The Indian Government has recognized the MSMEs and startup space in a big manner in 2016! The Finance Minister, Arun Jaitley announced the INR 10, 000 crore Startup Fund all along launching many other sincere efforts. Largely, the year 2016 will be recorded as a landmark year in entrepreneurship and manufacturing as the Indian government has taken various necessary measures to provide a highest level of support for startups and MSMEs so that they can make their performance better and fruitful.

Here is a sneak peek into some major things done by the Ministry of MSME in 2016 for helping MSMEs & Startups in India.

  1. Approval for Creation of ‘Indian Enterprise Development Service’ (IEDS)The Government approved the formation of ‘Indian Enterprise Development Service (IEDS)’ in the Office of Development Commissioner under the Ministry of Micro, Small and Medium Enterprises (MSMEs).( http://msme.gov.in/ ) According to the information provided by the ministry, “The creation of the new cadre and change in structure will not only strengthen the organization but also help to achieve the vision of “Startup India”, “Stand-up India” and “Make in India” campaigns.” The measure will enhance the capacity and efficiency of the organization and help in achieving growth in MSME sector through a focused and dedicated cadre of technical officers.”To start with this, a cadre will have strength of 617 officers out of which 6 will be at the level of joint secretaries. In addition, 72 field offices of the Development Commissioner will be opened which will be operated from headquarter located in Delhi. Out of these total 72 field offices, 30 are MSME development institutes and 28 branch institutes.
  2. Establishment of MSME Technology Centre at Greater Noida under TCSP & National Vendor Development ProgrammeThe Ministry of MSME laid the foundation stone of a new MSME technology centre at Greater Noida. This centre is one of the 15 new Technology Centres that are being established by the Ministry across the country. This centre will work for the Electronics Systems Design & Manufacturing (ESDM) (https://esdm-skill.deity.gov.in/ ) and Automotive Electronics sector’s MSMEs to accomplish their technological and skilled manpower needs. The total estimated cost involved in the implementation of this programme is Rs. 2,200 crore that include US $ 200 million loan assistance from the World Bank. The Indian government would invest more than Rs.145 crore for developing machinery and civil infrastructure in the Technology Centre.
  3. Launched National SC/ST HubThe Ministry of MSME has launched “National SC/ST Hub” in Ludhiana with an allocation of Rs. 490 crore as an initial amount for the period of 2016 to 2020. National Small Industries Corporation (NSIC) (http://www.nsic.co.in/ ) Headquarters in Delhi would support primarily this Hub and contribute to strengthening market assessment, monitoring and leveraging financial support etc.
  4. MSME Databank and Finance Facilitation LaunchedTwo new initiatives viz., MSME Databank Portal (http://www.msmedatabank.in ) and Online Finance Facilitation Web Portal (http://www.nsicffconline.in) has been launched by the Ministry of MSME this year. By launching Databank, the Ministry has made online Census of the MSMEs in the country for the first time.
    1. The databank is working as a one stop information source for all MSMEs of India. MSMEs can get all kind of information related to their requirements for technology, raw material, marketing and many other things. Most importantly, the government took a decision that no subsidy or grant will be given to any MSMEs if its information is not available on the MSME Databank.Besides, the online Finance Facilitation Centre has started working under the NSIC (http://www.nsic.co.in/ ) at Ludhiana, Guwahati, Lucknow, Delhi, Jalandhar and Peenya etc.
    2. Incubation cell at IIFT Delhi LaunchedTo enable young entrepreneurs and startups to get all kind of expert advice and support, an incubation cell launched at IIFT Delhi. The centre is dedicated to offer hand holding support to those startups that are in the international business domain right from the ideation stage to ready to hit the foreign market. The cell works under the centre of MSME Studies at IIFT (Delhi) (http://msme.iift.ac.in/msme/VIC/index.htm ) and has started an initiative named as “KITTES” (Knowledge for Innovation in Trade & Technology for Entrepreneurial Start-ups). This initiative will be supported by an advisory committee consisting of industrialists, technical experts, venture capitalists and more who are ready to help other budding entrepreneurs realize their potential and dreams. They all will also contribute to establish necessary infrastructure for facilitating all other required measures and schemes for the development of export MSMEs in India.
    3. Reviewed MSMEProcurement Policy and Issued New DirectionsThe Government has reviewed the Public Procurement Policy of all the Central Government Departments and Central Public Sectors. It was found that the share of MSME procurement is less than 10% against a mandatory 20% and that of SC/ST entrepreneurship share is less than 0.2% against a mandatory 4%. New directions was also issued all along to identify top 50 CPSUs and sensitized them toward meeting the requirement of Public Procurement Policy of MSMEs, which has already become binding from 1st April 2015 under the MSME Development Act 2015.
    4. Signed a MoU of Cooperation with Mauritius for helping MSMEs in both countiesA joint committee meeting was concluded between India and Mauritius with the MoU signed for initiating joint efforts in both countries for the cooperation in MSMEs. The key areas discussed during this meeting covered finding potential areas for new business opportunities, promotion of skill development, marketing, setting up of business incubators, starting joint cluster initiatives, etc. In addition, Mauritius will also offer Biofarming Technology to India.
  5. Apart from these initiatives, the Government of India has also taken many other steps to ease the ways of doing business. The Ministry of MSME had issued a circular that allows Central PSUs to relax the norms of “prior experience & prior turnover” for all those MSMEs who can production the as per the set quality and technical norms. Several other announcements has done to boost the Prime Minister Narendra Modi’s ambitious “Startup India” Programme and taking digital entrepreneurship at the grass-root level.
  6. VidyaSunil & Associates is into practice of Tax Complaince, Audit, Accounts , Corporate / Business Finance & Outsourced CFO Services.
  7. Advise for contacting VidyaSunil & Associates;
  8. E Mail ID : vidyasunilassociates@gmail.com
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Arifa Khan about Destination India 2010

Genius Incubator, UK is organizing an International Investors Forum: Destination India on November 11th and Smart Money & Genius Ideas on November 12th. Arifa Khan, Founder and Managing Director Genius Incubator talks about Destination India 2010.

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What is the vision of Genius Incubator ? What support do you offer to entrepreneurs ?

Genius Incuabtor’s vision is to make a silicon valley out of India for entrepreneurs. No deserving entrepreneur should be deprived of an opportunity to pursue his dreams for lack of capital and lack of an eco-system that enables early stage investing.

We started Genius Incubator with a simple mission: We help entrepreneurs and young companies from India access capital for their growth plans. We bridge the gap in early stage funding by providing these startups access not only to the domestic venture capital firms but also to the international community of experienced investors who can provide funding as well as guidance and vision for these companies.

How is the response so far from investors?

Let me give you the facts instead of an adjective. We have on board most of the top notch VCs that are active in early stage investing in India as confirmed investors – Sequoia Capital, IDG Ventures, Nexus India, Accel Partners, Helion Ventures, Fidelity Growth Partners, Gujarat Venture Finance Ltd to name a few. Some PE firms are also participating – Barings Private Equity, Baer Capital Partners, New Silk Route Advisors etc. Traction from these VCs and attendance of a handful of European investors who are visiting India for the first time with an eye and appetite for Indian investments is proof of the confidence they have placed in Genius Incubator and our ability to source and screen deals that are of the quality they seek.

How is the response so far from entrepreneurs?

Destination India has been heartily welcomed by entrepreneurs of all complexions as they have never before seen something like this in India, which is designed solely for the sake of getting entrepreneurs funded. We have been selective in the companies we are showcasing to our International investors, and have focused on high growth sectors of Technology, Mobile, Education, Healthcare, Consumer & Retail, Social Enterprise and Renewable Energy. And, we are well-represented across the life stages of business, sector, geography, and age profiles of entrepreneurs.

We have shortlisted 12 teams to present at Smart Money & Genius Ideas – 2 of the founders are from IIT Mumbai, 1 from IIT Madras, 3 are mature companies run by seasoned entrepreneurs with over a decade’s experience and revenues of > Rs25 cr per annum, 3 seed stage companies. As for geographic representation, we have entrepreneurs from London, Mumbai, Delhi, Pune, Bangalore, Chennai and Cochin- but all the companies will be based in India and catering to the Indian market.

Which are the popular investment sectors investors are seeking ?

All over the world, there are discernible pattrens of growing investments in Mobile/ smart phone apps, Technology, Renewable Energy

In India, we have a few sectors that are on the cusp of explosive growth like education, healthcare and retail because of Indian middle class’ growing disposable incomes, their aspirational consumption and conscious pursuit of a better lifestyle. There are some sectors that I predict to be the game changers – Alternative energy, Value added services in mobile, TV and Digital Media, Gaming and other smartphone apps. We have tried to pick companies with a combination of strong Management team, and innovative appealing idea.

What would you advise entrepreneurs who are looking to raise capital ?

Be investment ready, before you approach investors. If you can raise funds through cash generation from customers – do so and bootstrap to avoid undue dilution which you risk if you approach investors too early. If your idea needs scale, and speed to launch, then get the right team and strategy in place and approach VCs instead of bootstrapping.

I have seen from my personal observation of entrepreneurs all over the world that there is only one thing that distinguishes a brilliant entrepreneur – ability to think big. All other qualities and talent are in abundance, but vision and thinking big are lacking in many entrepreneurs. Whether you think big or small, the effort and the stress remain the same for an entrepreneur – so you might as well think big.

How is the perspective of European VC Investors different from Indian VCs ?

European VCs are still open to betting on new technologies, new products, untested business models. Indian VCs, in my limited perception are more inclined to invest in proven business models, much like private equity investments elsewhere, rather than really bet on risky ventures. But, to their defense, in India we rarely ever see good technologies and innovations happen, that are big enough to be game changers. Indian entrepreneurs most often go after service based businesses rather than on disruptive technologies or innovations to business models.

What will be the advantages of raising money from Europe v/s. raising from India ?

For entrepreneurs looking to scale up and expand internationally, having an offshore investor with expertise in those markets is an obvious advantage. Offshore investors can help with startegic guidance on expanding in their domains, and can help entrepreneur overcome knowledge and cultural barriers to doing business in a foreign country, and can also help with their local contacts.

How can Entrepreneurs seeking funds benefit from Destination India event organized by you ?

Fund raising is a full time job, which can be an expensive and unnecessary distraction to many entrepreneurs who would rather be focused on growing their businesses rather than chase the elusive VC or investor. They often do not know who to approach, how and when.

Destination India is a simple, efficient and elegant solution to fund raising challenges faced by entrepreneurs. We have created a platform where entrepreneurs can pitch to a room full of most coveted investors and have their undivided attention and feedback almost immediately – which would perhaps take them an year or more if they were to approach the same magnitude of investors on their own trying to arrange meetings, and still not be sure to get their business plans across to the decision markers, leave alone make a presentation to them.

You can find more information about the event on http://destinationindia2010.com.

About Arifa Khan :

Arifa Khan, Founder & Managing Director of Genius Incubator, has over 10 years experience in the financial services industry including six years as an investment banker in London with Credit Suisse and UBS. She has worked extensively with a variety of Private Equity and investor groups in Europe, advising them on potential acquisitions and their financing. Arifa has advised on several large size Leveraged Buyout transactions across Europe – including the Hirslanden Group (Switzerland), Clariant (Switzerland), Global Garden Products (Italy), Bodycote Testing Group (UK) and HTCC Invitel (Hungary).

Prior to London, Arifa was with Crisil in India, where she was responsible for analysing companies in the pharmaceuticals, information technology, and chemicals sectors. Subsequently, as Manager – Business Development at Crisil, Arifa worked with a number of growth oriented companies looking for potential financing alternatives through the Indian debt markets. Arifa credits her mentor Late Mr.Ravimohan, ex-chairman of Crisil, who mentored her through out her International banking stint.

Arifa has an MBA from The Wharton School of Business and a B.Tech from Indian Institute of Technology, Madras.

Source :  Press Release of year 2010

VidyaSunil & Associates is into practice of Tax Complaince, Audit, Accounts , Corporate / Business Finance & Outsourced CFO Services.

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E Mail ID : vidyasunilassociates@gmail.com

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Do you know your law? 275 Acts increase the risk of noncompliance in SMEs

SME & One of the effects of demonetisation has been the increasing transparency that organizations need to adhere to when it comes not just to transactions, but also to
processes. These processes could include ERP systems and adoption of various other
technologydriven tools in keeping with the Digital India drive. Demonetisation along with the Companies Act 2013 has spurred consultants, accountants and organizations to start
looking at compliance across the various applicable Acts with a keener eye.

Historically, most SMEs have had limited knowledge and awareness of Compliances that
impact them and often delegated this responsibility to junior management or outsourced it to consultants. Compliance has been synonymous with tax filing and SMEs are not really
aware that there are 275 plus Acts that could impact them.

Further, manual processes have been followed by them and their consultants with limited
information available on applicability of compliances, thereby making them error prone and leading to noncompliance in several instances.

SMEs and their consultants have used tools only for filing tax returns as this is mandated by the tax authorities. The approach to using consultants has also been piecemeal with very rarely a single firm being capable of advising a client across all Acts. Technology adoption by consultants has been next to negligible.

To give us a sense on how Compliances play out, we can categorize them into four areas. These include Ongoing (63%), Event based (27%), Due date based (5%), One time (5%). In this instance, I am taking an example of Labour laws to determine the %age contribution
of each category to give us an idea of their importance.

Every transaction has three elements, namely, Commercial, Financial and Legal. Transactions and organizational actions taken and plans made can trigger applicability of various compliances. It is practically difficult to rememb er all such events and their impact on various applicable statutes. Criticality of such eventbased compliances can be understood from the fact that such compliances constitute around 27% of our commonly applicable compliances. This is a high risk area as most businesses have low awareness of eventbased compliance.

Potential impact includes

Operational: Suspension of business, including but not limited to cancellation of business license.

Monetary: 100% of the instances will attract fines and monetary penalties

Imprisonment: In 70% of the cases imprisonment of the concerned officers in default.

Like most SMEs they are impacted by a large number of compliances covering Labour laws, ROC, FDI, Trademark, IT and many more. In order to build customer trust and maintain transparency within the organisation they decided to invest in technology for maintaining compliances right from the start.

As stated focus was to ensure better controls, mitigate risks given that they are blue collar intensive organization and build trust with their customers and employees. While they use consultants for some of their compliance work, most of the work has been moved inhouse given the criticality of the same.

In general, there is a fair degree of uncertainty among SMEs about the compliances that are applicable for their business which could make it a costly affair should there be noncompliance detected. At a recent meeting with an industry association we gathered that their members had invested practically no tool or technology to track and manage their compliances making them prone to the costs and risks associated with noncompliance.

Given the rising importance of risks and controls, I would recommend that SMEs seriously look at implementing a Compliance management system. It would help them across the following areas: Learn about compliance responsibilities of the organization and educate various departments on what compliances are applicable to each of them

Review regulatory impact of business decisions and sensitize employees to think through the implications. Integrate departments as they take these business decisions. Facilitate review of operations to ensure responsibilities are carried out and requirements are met
The system would be their repository of statutes, forms and other relevant documents. Will also update the team with necessary content on applicability of relevant Acts, Rules, Notifications and Circulars Actionable and prepopulated check lists and workflows to manage compliances linking departments that need to take appropriate action

Alerts and reports on compliance status

Ensure that audits are done smoothly and transparency maintained. Going forward, there is an opportunity to start using artificial intelligence tools for monitoring and reporting on compliance, analysing trends within industries, assessing the risks across businesses and building a seamless system within organizations.

Author : Thomas Abraham

VidyaSunil & Associates is into practice of Tax Complaince, Audit, Accounts , Corporate / Business Finance & Outsourced CFO Services.

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The Challenges Of Being a CFO In a Startup

Much has been made of the evolution of the CFOs role in the past couple of decades. No longer a role for those solely concerned with balance sheets and cost analysis, it’s now a multidisciplinary position that demands a diverse set of skills.

A report by McKinsey and Company identified that a CFO’s role can be categorised into one of four categories. The profiles listed below are representative of the company’s growth profile, structure and industry.

These include:

(1) The Finance Expert

(2) The Generalist

(3) The Performance Leader

(4) The Growth Champion

Defining the ‘type’ of CFO you are is not a luxury that finance leaders in start-up companies have. Start-up companies often demand more than their larger counterparts in terms of the variation of tasks and this means that the CFO has to wear a number of different hats, whether that be a risk mitigator, a strategic advisor or a business development leader.

With so much ambiguity surrounding the role, defining ‘the pillars’ of it may sound unnecessary, but there are issues that every CFO should look to address when they venture into the start-up arena.

Many more startups fail than succeed in today’s business climate. It’s a state of affairs that most entrepreneurs have come accustomed to and a symptom of a start-up arena that’s congested with competitors.

It’s because of this that risk mitigation has to take centre stage for the start-up CFO – continual assessment has to be carried out with a vigilant approach that sees every financial regulation upheld. Whilst in the early stages of development, a company’s future can be tarnished by a simple mistake and it’s imperative that the CFO guards against this.

Forecasting, planning and analysis is key at every stage of a company’s progression, but it is arguably at its most important whilst in the start-up phase. This is where the CFO has to put their strategy hat on as KPIs have to be analysed on a regular basis to see if the company is performing at the desired level.

With this in mind, the start-up CFO has to address a wide range of issues that CFOs in more established companies don’t have to touch. This makes the role challenging from a number of perspectives and although the role may not have as much in the way of responsibility in comparison to their peers in larger companies (CFOs in FTSE 100 companies will be dealing with sums well in excess of one at a start-up) the start-up CFO will have his/her fingers in more pies.

It’s about prioritising and having the ability to decipher what’s important at specific times. Capitalise the company whenever possible and know when to make the right move – adaptability is also key. The role of the start-up CFO is not the same as one in an established company and without question fails to adhere to the framework stipulated in the the McKinsey and Company report, instead, it’s a combination of all of them.

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