Scrap contentious angel tax proposal: Startups

Mumbai: As the Government grapples with 'angel tax', the Mumbai Angels Network on Wednesday said scrapping a contentious section in the Income Tax Act is the only solution which can help the startup ecosystem.

Claiming that taxation provisions have been misused, “Government is taxing fund infusions into startups, they said. The idea is to arrive at a fair valuation and consider the amount over the fair valuation as a premium and tax it at 30 percent. Various startups have raised concerns on notices sent to them under the Section 56 of Income Tax Act to pay taxes on angel funds received by them. Till and until you actually scrap the section the problem is not going to away," Mumbai Angels Network CEO and MD Nandini Mansinghka said.

Stating that the section may not go off, she said there is a "lot of intent from the government side" to solve the problem. Mansinghka, who was part of the meeting on February 4, said the committee is working with the government on defining a startup and an angel investor. "These are tricky questions and will not come up with the perfect solutions, but I think in about a couple of days we will get a better solution on it. It is an ongoing discussion with the government that we will have to continue to do to figure out the right answer," she said.

Sounding skeptical, Mansinghka said the problem may just reduce only by a bit as more companies can come inside the startup ambit and stressed on the importance of the prevalence of the section. The government is considering giving complete exemption to startups from angel tax once they are certified by the Commerce and Industry Ministry, however, as per reports The Central Bureau of Direct Taxes is unlikely to allow exemptions to startups who have raised money from accredited investors.