Forget about taxman, focus on business: CBDT to startups

By | July 7, 2019

Startups have flagged their grievances regarding angel tax provision, which they considered was not friendly to them. (iStock)

New Delhi: The country’s startup community should not worry about taxmen and concentrate on their businesses as concerns related to ‘angel tax’ have been “sorted out”, CBDT chief P.C. Modi said on Saturday. All “legacy issues” related to startups will be resolved through a consultative process and under the strict supervision of senior officers of the tax authority.

In her maiden Budget speech on Friday, finance minister Nirmala Sitharaman proposed a number of measures to resolve the problems faced by startups regarding initial funding, generally referred to as the angel tax, their certification and verification of investors.

“I am very happy to say that all issues which were there with the DIPP… we have had extensive deliberations between both the departments and we have resolved all issues related to startups,” the CBDT chief said.

The Department of Industrial Policy and Promotion (DIPP) is now called the DPIIT (Department for Promotion of Industry and Internal Trade DPIIT).

“The issues resolved are with regard to the definition of startups, the valuation of shares and sources of funding,” Mody said.

The DPIIT, which comes under the commerce and industry ministry, deals with foreign direct investment and issues related to startups.

“Now, I think everything has been sorted out and there should not be any cause of concern for startups,” Mody said. “As the head of the tax family, I can definitely assure startups that there would not be any occasion for them to agitate or have any misgivings. They can just concentrate on doing their business,” the chairman said.

The Central Board of Direct Taxes is the policy-making body of the income-tax department. Asked about the “administrative arrangements” that his department will make in this context, as announced by Sitharaman, Mody said the finance minister’s statement was in respect of “legacy issues”.

“Like in certain cases where scrutiny (of a startup) had already commenced or notices were already issued, there we propose to have dedicated officers carrying out the scrutiny and that also would be done in consultation and prior approval of supervisory officers,” he said. “So, when there is an involvement of senior officers and there is more of a consultative process, I do not anticipate that there would be any issue left that would trouble or agitate startups,” the CBDT chief said.

Sitharaman has stated that it will be ensured that no inquiry or verification in such cases be carried out by the assessing officer without obtaining approval of the supervisory officer. Several startups have been complaining and making representations to the government for about a year regarding I-T notices. They claimed it was getting difficult for them to operate when the taxman was breathing down their neck. Sitharaman, in her budget speech, said startups in India were taking firm roots and their continued growth needed to be encouraged. “To resolve the so-called ‘angel tax’ issue, startups and their investors who file requisite declarations and provide information in their returns will not be subjected to any kind of scrutiny in respect of valuations of share premiums,” she said.

The issue of establishing the identity of the investor and source of his/her funds will be resolved by putting in place a mechanism for e-verification, she said.

With this, funds raised by startups will not require any kind of scrutiny from the I-T department, the minister said.

An investor who funds a startup when it is setting up its business in the competitive market is termed as an ‘angel investor’. Normally, about 300-400 startups get angel funding in a year. Their investment in a unit ranges between 15 lakh and 4 crore.

The finance minister, to help startups, also proposed to relax certain conditions for carrying forward and setting off of losses.