Tax authorities have sent across angel tax notices to many new startups to pay tax on the funds received to expand their businesses. The issue of these tax demands coupled with the new FDI guidelines and other such regulations may lead new startups to consider registering their companies overseas in countries like the US or Singapore.
The angel tax regulation, in all probability, will affect funding for new companies too. In the past year, various startups have incorporated their companies in foreign jurisdictions due to the new tax and foreign investment rules.
Angel tax was introduced in the year 2016 and has affected initial investment to companies since then. The number of seed investments and angel investments had significantly dropped from 1,030 in the year 2016 to 484 in 2018.
While around 16,000 startups have been registered under the Startup India initiative, there is no clarity as to how many of these have been given the angel tax notice.
The Department of Promotion of Industry and Internal Trade (DPIIT) and CBDT are likely to finalise on ways that could settle the tax issue this week.
Source: Times of India