No 'Angel Tax' breather for us, say startups who have got IT Dept notices

No 'Angel Tax' breather for us, say startups who have got IT Dept notices

Monday February 05, 2018,

4 min Read

We are still in trouble. Nothing has changed for us."

This is what a startup founder, who has already received an 'Angel Tax' notice and has filed an appeal, has to say about reports saying the Government has asked the Tax Department to not pursue cases against startups.

A The Economic Times report quotes Finance Secretary Hasmukh Adhia as saying that the Finance Ministry has sent a proposal to the Department of Industrial Policy and Promotion (DIPP) on the tax. "If DIPP agrees, then we will not make any adjustment for startups set up before 2016," the report quotes the Finance Secretary as saying. The report further states that startups registered with DIPP will not face action, and that the proposal is to register startups set up before 2016.

The most problematic point, from the perspective of startups who have received tax notices, is the part where the secretary says that "where assessing officers have given notices, we have said no one will proceed further till the first appeal is decided at appellate level."

Here are the issues, as per the startups and other industry insiders, who are working with these startups. However, everyone spoke only on condition of anonymity.

1. No direct communication

YourStory spoke to multiple entrepreneurs who have received notices on Monday. They have reached out to tax assessment officers and Commissioners in their respective circles. "They all say they have not got any communication from the Government," says a founder.

There was already confusion because of the high discretionary powers vested with the assessment officers. The reports and lack of direct communication are adding to the confusion.

Also Read: Here’s why startup founders and investors are praying for respite from ‘Angel tax’

2. The appeals 'fines'

Those who have received notices were to deposit 20 percent of the tax amount at the time of filing for appeal. Many startups do not have this money (there are those whose tax, according to assessment officers, runs into lakhs of rupees, and even crores). The founders who got the notices filed the appeal by paying only the Rs 1000 review fee, adn have not paid up this 20 percent. "One founder got a call from tax authorities asking him to deposit the 20 percent. Others haven't got any calls," says a founder.

There is now uncertainty whether others have to pay the deposit or not. This is because the Finance Secretary has said no action will be taken till the first appeal is decided at appellate level. For the appeal process, as per rules, the deposit has to be paid. Also, those who have got the notices have got no breather. They have to go through the appeals process, which could start only three to six months from now.

Also Read: Startup tax: Jaitley's angels refuse to budge

3. The DIPP registration

The reports say those registered with DIPP are exempt. YourStory's earlier article on Angel Tax had highlighted an example of a startup that is registered with the DIPP, but had still received a notice. What happens to this startup's case?

"What we have heard is that those startups who have got notices for the pre-2016 financial years are not exempt. Most of us who have got notices have got those for the FY2014-15 financial year. So will a DIPP registration make these notices void?" asks a founder.

Then there is the troubling question of what happens to those whose startups have shut down. These startups cannot file for a DIPP registration, as there is no startup anymore. Some of the founders are now working as employees at companies, and do not have the money to pay up taxes and fines. What happens to them?

More questions than answers have been raised. But as an entrepreneur says:

At least the Government is looking into this issue. That gives us hope. After the Budget we had given up hope."