[YS Exclusive] Angel Tax: Government forms working group, promises new framework to resolve the issue

A meeting earlier today saw government officials and various stakeholders from the startup ecosystem agreeing to work on a new mechanism to define genuine startups and angel investors and resolve the Angel Tax issue once and for all.

The government will constitute a working group to solve the Angel Tax imbroglio affecting the startup ecosystem in the country and plans to come out with a new framework to define 'startups' and Angel investors in the next five days so that genuine companies or individuals are not harassed.

At a joint meeting held in New Delhi on Monday, which was called by the DIPP and included representatives from the Income Tax Department, Angel investors, fund managers and entrepreneurs, the Government expressed that it was serious about resolving this issue, a source present at the meeting told YourStory on condition of anonymity.

“The government sought inputs from us on how to define a genuine startup and Angel investor,” said the source. The government is also reported to have assured stakeholders that once there was clarity in defining these two categories, they would incorporate them in the new framework.

During the meeting, which stretched for two-and-half-hours, the government, in principle, agreed that it would expand the scope of startup from the current tenure of seven years to 10 years and also increase the threshold on revenue. The government is also said to have admitted that the provisions of Angel Tax should not have been used to target the startup ecosystem in the country, but categorically ruled out doing away with this law.

The contention of the government was that this provision was helping them in unearthing various money laundering activities in the country. It assured startups and investors that it would come with a workable solution in granting of exemptions for startups and also defining what constituted an accredited investor.

“The government is genuinely trying very hard to solve this problem,” the source said.

Prime Minister Narendra Modi, in an interview with YourStory published on January 25 this year, had given a strong indication that the government was working on solving the Angel Tax issue.

“When the issue was raised, the other ministries concerned immediately discussed this issue and assuaged the startup community. A healthy dialogue has happened between the community and the government, and I am told that a further order has been passed to give relief to the startups,” Prime Minister Narendra Modi told YourStory.