Congress president Rahul Gandhi said on Monday that if voted to power, the Congress would abolish the so-called angel tax — a 30% levy on foreign investments over Rs10 crore in Indian startups — that has long plagued the sector. Startups have long complained about the angel tax policies that surround it. Apart from having to pay the tax, startups must also prove that they are genuine firms and not shell companies, furnish details (including Registrar of Companies details) of their registered office, its location by latitude and longitude, weather, and pictures of the inside and outside.

“The angel tax goes counter to the philosophy of startups. When we come to power, we will scrap it. You can call me on that one,” Gandhi told an audience of 600 startup entrepreneurs at Manyata tech park in Bengaluru, according to a report in The Hindu. Following his comments, the Congress party (@INCIndia) tweeted the following to its 4.97 million Twitter followers:

NASSCOM and others ask govt to scrap angel tax

In January, industry bodies NASSCOM, TiE Global, Indian Private Equity & Venture Capital Association (IVCA), Chennai Angels, India Angel Network and Rajasthan Angels wrote to the union government, asking it to abolish the tax.

The government had exempted startups from angel tax in April 2018, but only if their total foreign investment including funding from angel investors is less than Rs10 crore. Despite this, in December that year, around 25 startups and some angel investors were served with notices by the CBDT to pay taxes on angel funding they had raised years ago.

Exemption only for ‘certified’ startups

The government’s exemption also applies only if the angel investor has a minimum net worth of Rs 2 crore or an average income of over Rs 25 lakh in the preceding three financial years. Only firms certified as startups under new government norms are exempt from the angel tax and eligible for other tax benefits.

Redefining startups in India, the government said that a business entity in India shall be considered as a startup up to a period of seven years from the date of its incorporation or registration (as defined in the Companies Act, 2013 or registered as a partnership firm under Sction 59 of the Partnership Act, 1932 or a limited liability partnership under the Limited Liability Partnership Act, 2008) in India. In biotechnology space, this period will be ten years.

The government said that a startup should not exceed turnover of ₹25 crore in any fiscal year since the date of its incorporation. For validation, a startup shall make an online application over the mobile app or portal set up by the Department of Industrial Policy and Promotion. A company incorporated on or after 1st April 2016 can claim a 100% tax exemption after the new notification.

Interim budget disappoints

The interim budget announced in February brought little cheer to the startup sector. “We were looking for something on angel tax to be addressed in the budget because it is a huge issue,” Padmaja Ruparel, President, Indian Angel Network told Business Today. “This devil is still in the system,” she said.