Start-ups see corruption, securing funds as key challenges in 2019: Report

Several start-ups and angel investors have raised concerns over notices received from the income tax authorities related to taxation of angel funds

A large number of start-ups, and small and medium enterprises in the country view corruption or bureaucratic inefficiencies, securing loans and funding as major challenges in 2019, according to a report by citizens engagement forum LocalCircles. 

The report, which is based on responses from over 15,000 start-ups, SMEs and entrepreneurs, found 45 per cent respondents saying they foresee corruption or bureaucratic inefficiencies as the top challenge in 2019, followed by securing loans and funding (37 per cent), and business growth (18 per cent).

"Angel tax is one area that falls under corruption and bureaucratic inefficiencies as it takes the focus of start-up entrepreneurs away from building a product or service to responding to tax notices and filing appeals, something that start-ups can clearly do without," it added.

Several start-ups and angel investors have, in the recent past, raised concerns over notices received from the income tax authorities related to taxation of angel funds. The government has also set up an expert committee to look into all the taxation issues faced by start-ups and angel investors. 

The study highlighted that 38 per cent of the respondents said they had received at least one notice.

"Angel tax continued to be a key pain point for start-ups where the assessing officers in many cases reject the valuation method utilised by the start-up and instead treat the capital raised as income from other sources, thereby, raising a tax demand and penalty on the start-up," it added. 

Also, a majority of the respondents said they feel there is an urgent need for the income tax authorities to be educated on start-up valuations. 

LocalCircles, on behalf of thousands of start-ups, had raised the issue with the Department of Industrial Policy and Promotion and Central Board of Diret Taxes in late December 2018.

"...though an order was issued to not take coercive measures to recover the demand, assessment orders continue to be issued against startups," it added.