Angel tax exemption a good effort, but more needs to be done: Industry

The government’s move on Tuesday to relax norms for start-ups will “unshackle angel investing” and unleash the next wave of entrepreneurship, helping India bolster its position as a leading start-up nation, said industry experts.

This, they believe, would help bootstrapped firms in not only securing funds, but help further expansion.  

Angel investors believe this move will bring in domestic monies for start-ups and help create a New India. “This is a seminal move for angel investing and the foundation of Start-Up 2.0,” said Padmaja Ruparel, co-founder, Indian Angel Network (IAN) & founding partner, IAN Fund.

According to industry think tank iSPIRT, domestic investments are set to rise. “Introduction of accredited investor, exemption of investments from accredited investors as well as the removal of barriers for listed company investments spells the beginning of what could be the golden period for domestic investments,” the think tank said.

However, some e-commerce firms believe the limit of money raised should be done away with altogether. “In many cases, Series A is beyond Rs 25 crore. So there should not be any limit on the investment amount in the first place,” said Abhishek Verma, co-founder Quikmile, a logistics start-up.

According to others, fundraising challenges might still linger as taxes on fundraise should have never been there in the first place. “Any tax on capital raising will kill the start-up ecosystem. The taxability of the source of the investor’s funds should be addressed by investors and not by start-ups. A good move, but we have a long way to go in incentivising start-ups and build a Silicon Valley-type scale and depth,” said Srikanth Ganesan, founder, LittleMore Innovation, an education technology start-up.

Also, some players claim that the provisions need to be tweaked and that a few clauses affect the growth of the firms. “Appreciate another effort to exempt genuine start-ups from the angel tax, with higher limits and better guidelines. With this, start-ups can apply to the Central Board of Direct Taxes in advance and seek exemption. While the step is in the right direction, it is two steps backwards as well. It prevents the start-up from investing in its subsidiaries or make equity investments even in the ordinary course of business,” said Sunil Goyal, managing director and fund manager, YourNest Venture Capital.  

According to industry bodies, by raising the period of eligibility of start-ups up to a period of 10 years from the date of incorporation/registration in place of the earlier duration of seven years, the government has signalled its intention to promote start-ups and angel investment in the country.

“The relaxation in recognition of an entity as a start-up by increasing the turnover limit to Rs 100 crore from Rs 25 crore would go a long way in encouraging new-age entrepreneurship and innovation. We welcome the government’s focused attention to start-ups, which have been looking towards the government for relief from the so-called angel tax,” said Chandrajit Banerjee, director general, Confederation of Indian Industry.