Tag Archives: Startup Exit

Government to further ease framework to excercise Angel Tax

The government is open to further easing the simplified framework that will allow startups to seek exemption from the so-called angel tax to address concerns that entrepreneurs and other stakeholders have raised.

Besides, the Central Board of Direct Taxes (CBDT) will soon set up a dedicated unit for processing requests from startups and angel investors for exemption to expedite the process, a government official said. The Department of Industrial Policy and Promotion (DIPP) will meet stakeholders in the first week of February to seek feedback and inputs on the way forward. The new framework was announced on January 16.

“It’s always a work in progress,” DIPP secretary Ramesh Abhishek told ET. “We will keep improving it based on more feedback. We have called a meeting of stakeholders in the first week of February to discuss all issues of policy and implementation. We can make more changes after that.”

The startup community and angel investors are especially concerned about the wording of one of the conditions.

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This states that for angel investors to be eligible for tax exemption they should have a declared income of Rs 50 lakh or more in the financial year preceding the year of investment “and” net worth exceeding Rs 2 crore. They want this to be replaced by “or” since “and” restricts the scheme’s applicability in their view. They also want the income and net worth threshold reduced by 50%.

ANGEL TAX
The government announced the Startup India action plan in January 2016 as part of its broader strategy to boost economic activity and job creation by fostering innovation. Startups have been allowed income tax exemption for three out of seven consecutive assessment years under the plan. The government has subsequently carried out several changes to the scheme to make it easier for entrepreneurs.

The latest overhaul of the startup framework was prompted after a number of startups and angel investors received notices from the income tax department for what has been dubbed the angel tax. This has its genesis in Section 56 (2) (vii) (b) of the Income Tax Act. Under this, when a closely held company issues shares at a price that exceeds fair market value, the difference will be taxed as income from other sources. The provision was introduced in 2012 with the intent of curbing the laundering of black money. But it has impacted angel investors as their investments typically exceed what is regarded as fair value.The I-T department had questioned investments and valuations of investments by angel investors and levied tax on some of them. An angel investor funds startups at the nascent stages. Typically, about 300-400 startups get angel funding in a year in India.

Source :  Press Reports

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Govt steps up efforts on quicker exit for startups

The government is working on a fresh set of initiatives for startups, including rolling out norms for resolution of companies that are facing financial stress within 90 days and new tax proposals. The department of industrial policy and promotion (DIPP) will hold consultations over the next few days to provide a further boost to startups, including norms for allowing them to raise more debt from promoters.

 While a committee had suggested that the time frame for deciding on a resolution package for startups be halved from the 180 days for companies, the ministry of corporate affairs has started work on notifying the norms although the process may take two-three months. “We need to hold public consultations before we notify the norms. But if everyone is on board and a company is not saddled with litigation, then the winding up process can start before the prescribed 90 or 180 days,” said an officer. The norms on faster exit are in focus after the arrest of Yogendra Vasupal, the co-founder of homestay aggregator Stayzilla.

The government’s latest effort, however, goes beyond quicker exit with DIPP’s consultations with other government agencies focusing on several issues related to corporate, financing and infrastructure. The finance part is also seen to be crucial as several companies are finding it tough to raise funds. “We want to ensure that startups have access to debt and equity to grow. Various measures are being discussed,” DIPP secretary Ramesh Abhishek.

So far, around Rs 650 crore has been cleared and the plan is to step it up significantly to over Rs 1,800 crore next fiscal and over Rs 2,300 crore by March 2019. This support is going to come from Sidbi, departments of science and technology and biotech as well as through the credit guarantee fund, whose Rs 2,000 crore corpus in four years will provide comfort to banks to lend to over 400 startups. To step up funding from the Rs 10,000 crore fund of funds, DIPP is seeking changes in the guidelines that will allow easier financing. The government expects around Rs 600 crore to flow to 15 venture funds next year, a significant jump from Rs 115 crore to five VCs this year.
Sources said that a further relaxation of Angel Tax is also in the works by recognising angel investors as a category and treating them similar to venture funds. Talks have also been initiated to allow for exit before one year without being burdened with capital gains tax, a benefit that is currently available in listed entities.
Source : NEWS ARTICLES
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