Budget 2019: Startups Get Shark Tank-Style TV Show, Some Relief On Angel Tax 

While startups still need clarity on angel tax that has threatened funding ecosystem, India plans a Shark Tank-style television show to help newbie ventures raise money.

It was one of the proposals in the first budget of Prime Minister Narendra Modi’s second term. The government, however, did offer relief to startups in the prickly taxation issue.

Finance Minister Nirmala Sitharaman, in her maiden budget, said to resolve ‘angel tax’ issue, startups and investors who file required declarations and provide information in their returns won’t face scrutiny when startups issue shares at a premium. The government also aims to create mechanism for e-verification to identify the source of funds.

“De-linking of share premium is the biggest relief to the startups,” K Ganesh, a promoter of venture building platform Growth Story. “Share premium has been the core issue in angel tax confusion, and most of the startups are caught in the justification of the premium.”

Special administrative arrangements will be made by Central Board of Direct Taxes to redress issues related to angel tax, Sitharaman said. No inquiry or verification in pending cases can be carried out by the assessing officer without obtaining approval of the supervisory officer, she said.

Startups that had received demand notices on angel funding took to social media as the exemption letter didn’t help them avoid tax scrutiny. And the taxman had adjusted tax deducted at source against the demand.

“Startups who have received demand notices or for those whose demand has been adjusted against the TDS refund can get proper redressal now,” said Rajiv Chugh, partner and national leader, policy advisory & speciality services at EY India, said.

Still Need Clarity

Some are still cautious.

Enforcement would entail the need for stringent directions and complete transparency, Murali Talasila, partner and leader, startups and innovation at PwC India, said.

To be sure, the government hasn’t directly said the startups with exemption letters by the CBDT can avail exemption on their tax notices.

“The startups with notices are still in confusion,” Sreejith Moolayil, cofounder of True Elements. “The budget has brought back more powers to bureaucrats, as now a committee will look at startups with orders and a senior official will look into valuation report,” he said. “Besides there is no mention on retrospective effect of the angel tax exemption.”

According to Raman Roy, cofounder of Indian Angel Network, e-verification mechanism is an enabling one for both startups and angel investors.

• The finance minister also said category-II alternative investment funds— registered real estate, private equity and distressed assets funds—are exempted from income tax scrutiny like the category-I funds.
• The government also proposed conditions to carry forward and set off of losses for startups.

“Finally, the cash burn in initial stages of set-up, would not be an opportunity-loss anymore for the startups,” Chugh said. “This will ensure that deferred tax assets can now exist in the financial statements, thereby boosting valuations,” he said, adding that it will motivate more foreign investors to pump money into early-stage startups.

Other Highlights

• Capital gains arising from the sale of residential real estate for investment in startups extended till March 31, 2021.
• Government allowed 100 percent FDI in single-brand retail and proposed removing the 30 percent local sourcing norms. Startups such as Urban Ladder, Livspsace and others that operate offline single brand stores to benefit.
• Startup India scheme to continue from 2020-2025.

Reality TV For Startups

Sitharaman proposed to start an exclusive TV channel for startups under Doordarshan, designed and executed by startups. “This shall serve as a platform for promoting startups, discussing issues affecting their growth, matchmaking with venture capitalists and for funding and tax planning.”

The popular American reality television show Shark Tank allows aspiring entrepreneurs pitch ideas to a panel of investors.

“We appreciate the FM’s proposal to start a new TV channel exclusively for startups on Doordarshan which will serve as a platform for startups like us to disseminate information to the industry,” KNM Rao, co-founder and chief executive officer, Quick Ride, said.

Sameer Aggarwal, founder & chief executive officer of RevFin, agreed. “While there may not be immediate returns to startups through this channel, over the long term as the content and participants increase in numbers and quality, the channel could emerge as the leading voice of startups,”