It was in 2012 that Pranab Mukherjee slammed Angel Tax on Startups, making many go out of business. After three years, the fair market value without taxation was set to 10 Crore in INR. However, with not a word spoken in the 2018 Budget, there is much to worry about Angel Tax for startups in India. Explore the right reasons and solutions to make your startups work in India if you’re worried about Angel Tax!
Define Angel Tax in India
When a startup receives investments from unlisted companies or individuals, these investors are called Angels and their investments, Angel investments. Angel Tax is the tax levied on these investments above the fair market value (currently 10 Crore INR). Besides fine print loopholes, Angel Tax presents multifarious hurdles for emerging enterprises and startups in India.
If you’re a startup or entrepreneur thinking about starting your own trade, you must read this post on the hurdles and solutions to overcome Angel Tax in India for startups.
What are the hurdles Angel Tax Poses to Startups?
· Financial Instability
The biggest challenge of Angel Tax for entrepreneurs in India is the financial instability it presents to the founders. When the government bites a giant chunk of tax out of the groveled and skewed money that budding entrepreneurs collect for their fresh ideas, it is downright destabilizing.
· IT Notices
Many entrepreneurs such as Rahul Vats (floapp.ai) and Moneylife Magazine say they have been slammed with incessant IT Notices in the past year. It is common logic that startups need their early few years to tally their savings and investments. With scary IT Notices issued every now and then, startups are facing shut down from fear of going bankrupt or burdened with legal liabilities.
· Without Angels, There are no VCs
Another commonly ignored fact by the Indian government is that without generous investments from angels, it is hard for startups to create anything. Rahul Vats exclaims how he raised over 1 Crore in INR for hardware startups, just before the IT Laws in India slammed his company. Even though the government is trying to force VC’s, it is forgotten that VC will not occur without angel investments.
· Bizarre Criteria
An appalling flaw of the Angel Tax in India is the unreasonable criteria. While the maximum age for a startup was five years, it is seven years now. Other confusing criteria are the fair market value coerced by the government.
· Shifting to Overseas Market
Due to the incessant problems in the investment market for entrepreneurs, many startups have already shifted to lucrative destinations. To prevent losing startups from thriving in India, the government must re-draw the entrepreneurial freedom in India. Without startups, India will be pushed behind in the digital race today.
· Angels Withdrawing Actively
As IT notices are sent to the investors or angels in addition to the startup founders, more angels are withdrawing from investments for startups in India, nowadays. This is grossly discouraging for entrepreneurs and startups in India.
The Real Estate Expert Says …
Angel Tax is discouraging to entrepreneurs and small businesses. It is choking progress and startups must strengthen their voice to be heard at the national levels. Drop your comment in the box below to get started!
