Draconian Angel Tax Abolished For Indian Startups; Corporate Tax Can Be Capped At 25%

Draconian Angel Tax Abolished For Indian Startups
Draconian Angel Tax Abolished For Indian Startups

Since this term has started, the new finance minister, Nirmala Sitharaman has made many changes and additions in the new finance model governing the economy of the country. Amidst the wide range of changes that the maiden finance minister and her team has contributed to the economy, here are two further additions.

Taxes have always been a major issue with every sector of profession and has obviously left no citizen living in this country untouched. Speaking of start-up companies, the evolution of which is booming exponentially in India, have now been exempted from from Section 56(2), or a term called as ‘angel tax’, as per Sitharaman.

Not just that but did you know that India has one of the highest corporate tax rates in the world? Good for corporate, a government panel has recommended to cut down this corporate tax by 25% to 30% for all companies and scrapping surcharges on tax payments.

‘Angel Tax’ Exempted from Start-Ups

The angel tax, introduced in 2012 says that any person coming up with a startup have to pay a certain tax if they received an investment at a rate higher than their “fair market valuation.” Local tax authority in India value start-ups for what it is worth currently, instead of assessing them on the basis of what it could eventually become in the future.

Three days back, the government decided to levy the 30% tax exempted on these start-ups. Sitharaman said any startup registered with the Department of Industrial Policy & Promotion, a government body, will be exempted from the angel tax. Currently, more than 24,000 startups are registered with it, so an excellent news for them.

The concept of angel tax was actually started to prevent shell companies from creating capital from nowhere but its adverse affect was becoming too much for genuine start-ups to sustain themselves.

Many prominent investors, startup founders, analysts and other industry executives have long publicly criticized the angel tax and believe that with such roadblocks, India could lose its chance of building a rival to Silicon Valley. Many start-ups had no choice other than shutting down their companies.

Not just this, the government shall set up a dedicated cell to address other tax problems that startups face, for instance any income-tax related issues can be resolved quickly with the help of such cells. Even though Indian tech startups raised a record $10.5 billion in 2018, early-stage startups saw a decline in the number of deals they participated in and the amount of capital they received.

The government hopes that such a step towards shall help start-ups to grow more.

Govt Recommends Cutting Corporate Tax by 25-30%

A government panel has recommended to cut down corporate tax rate by 25-30% for all companies and also to revoke the surcharge, which increased tax on foreign companies investing in India to over 40%. The panel headed by Akhilesh Ranjan, a member of the central board of direct taxes, delivered its report to Sitharaman on Monday. 

India imposes 30% corporate tax rate on domestic companies and 40% on foreign firms, along with a 4% health and education surcharge on total tax payments. 

It also charges a surcharge of 12% for domestic companies and 5% for foreign companies if their taxable income exceeds 100 million rupees. It has been told that Sitharaman has been provided with this report and after proper scrutinization, she may include it in the government’s 2020-21 budget proposals. 

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