Founders facing down rounds wary of impact on angel tax
fundraising challenges are reaching out to tax experts to discuss possible angel tax scrutiny, alarmed by recent income-tax department actions following changes in angel tax provisions.
A founder who is in the middle of raising a down round said the threat of getting I-T notices has gone up especially after the government brought overseas funds under ‘angel tax’, or Section 56(2)(viib) of the Income-Tax Act, 1961, from 2023-24.
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Offering CollegeCourseWebsiteIndian School of BusinessISB Professional Certificate in Digital MarketingVisitNorthwestern UniversityKellogg Post Graduate Certificate in Product ManagementVisitIndian School of BusinessISB Digital Marketing and AnalyticsVisitIIM LucknowIIML Executive Programme in Data ScienceVisitUntil 2022-23, the angel tax provision was applicable only upon issuance of shares to tax residents in India. The Finance Act 2023 has expanded its scope to include the issuance of shares to tax non-residents in India.
Tax sleuths have in recent times issued notices to specific startups, seeking information on investor creditworthiness and verifying if investment amounts align with declared incomes.
After the IT department action, entrepreneurs whose companies have experienced significant value losses in the past year or so are growing increasingly concerned about the possibility of receiving notices from assessing officers as their ventures have seen substantial fluctuations in valuations within a relatively short timeframe.
These startups had previously raised funds from venture capital (VC) and private equity (PE) funds at a premium, based on ambitious forecasts projected a few years ago. But now the valuations of high-profile
