Everything Angel Tax Presents to Entrepreneurs in 2018
If you think Angel Tax is some sorta invisible tax, you should get to know about it before the Indian IT department summons you with legal liabilities. Angel Tax refers to special investments and is currently the choking rope in the neck of Indian Startups. Learn everything about Angel Tax in the next ten minutes to avoid making pricey errors if you’re an entrepreneur!
What is Angel Tax?
When you receive money from unlisted individuals or firms above the minimum of 10 Crore, the tax will be levied. The problem lies in the fact that early startups sweat blood and water to get the early funding. Oftentimes, this is purely out of goodwill. With Angel Tax levying up to 30.9% of the amount, there is a significant dent in the proposed growth and progress of startups in India.
When was Angel Tax Introduced?
It was in 2012 that Pranab Mukherjee passed the Finance Act during the Union Budget. The new tax under section 56 two (VIIB) in Income Tax Act 1961, states any amount about the ‘fair market value’, of the business will be considered as the revenue of the startup. In such a case, 30.9% of the total value must be paid as Angel Tax by the startup.
Moreover, the tax is applicable only to the angel investors in the country while Venture Capital Investors (VC) do not need to abide by it.
What are the Laws in 2018 About Angel Tax for Startups in India
Current Budget said no word on the flaming debate on Angel Tax. While many startups are looking for ways to migrate their business ideas to markets with relaxed taxes, Indian Government is staying silent.
At present, Startups need not worry about taxes if they are younger than seven years and with a funding of less than 10 Crore Indian National Rupee. While you can find endless tangled laws about angel tax, it is important to seek the help of a lawyer before you plunge into legal formalities of starting a startup in India.
Blunder in Indian Taxes Vs China Vs Germany
Indian taxation laws have been long since ridiculed by most of our neighbours. It is counter-progressive and backward. Instead of rewriting the corporate laws to attract investments and progressive industries in India, the government tries to choke startups in India swiftly in their initial years.
While India levies 30.9% as angel tax, China allows startups investments of up to 70% to be exempted for two years. Another shocking tax exemption comes from the richest neighbour, Singapore. In Singapore, Startups are exempted $200,000 in taxes for the first three years.
If you go farther, Germany, U.K, U.S and even Australia has lucrative tax exemptions for startups. Moreover, the recent budget spoke no word on Angel Tax for Entrepreneurs in India.
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