Domestic startups come under income tax glare for their recent funding

economictimes.indiatimes.com:

fintech sector, have received income tax notices in recent weeks with respect to venture capital raised by them, according to people in the know. The notices — served under Section 68 of the Income Tax Act — have clubbed the investments received by these startups with the income earned by them, and tax and penalties have been levied on the combined amount, the sources said.

So much so that one startup, registered with the Department for Promotion of Industry and Internal Trade (DPIIT) — has been asked to pay Rs 37 crore in tax and penalty on funding of Rs 40 crore by venture capital investors, they added.

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To be sure, under Sec 68 of the I-T Act, if a company is unable to satisfactorily explain the nature and source of the funding it receives, authorities are permitted to tax the capital raised along with income earned by the startup in the relevant year. Equally, such tax demands are also closed if the company offers a satisfactory explanation and furnishes the requisite documentation.

Typically, a DPIIT-recognised startup does not face such scrutiny.

Balance Sheet of Investors Wanted
Earlier this week, the founder of a fintech startup received a notice requiring him to furnish the balance sheet of investors who invested capital into his