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While the notification of August 10 should theoretically close the case of #angeltax, the clause that startups cannot park raised money in FD/Liquid funds, may still be putting some businesses at tax risk.
Though my bachelors’ degree is in law, I never had practical exposure to key pillars of democracy until we received an ‘angel tax’ order.
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It was January 2018, when we were asked to pay Rs 39 lakh towards the Rs 1 crore we had raised. Out of frustration, I tweeted to the Finance Minister tagging some media handles including CNBC-TV18. It was CNBC-TV18 that responded first and got us an audience amongst the startup and investor community.
The first television discussion with Shereen Bhan helped me connect with other affected entrepreneurs and we quickly formed a group. We subsequently got the attention of many media houses and this helped us evangelise (pun intended) the #angeltax issue within the startup ecosystem.
Subsequently, other stakeholders like angel investors, accelerators and early stage VCs joined us but we were still just a group of agitated entrepreneurs. This changed the day, the then DIPP chief, Ramesh Abhishek, was asked during a media interaction about the angel tax issue; he acknowledged the matter but had no ready solutions. That was my first moment of reckoning on the key pillar of democracy: the media.
We kept raising the decibels of the debate and this got us the attention of another important pillar of democracy: the Opposition. They saw an opportunity to attack one of the government’s most celebrated projects (Startup India). We were aware of their intention and chose to stay apolitical and out of the cross-fire. Our group reached out to the concerned authorities on a Friday evening, the bureaucracy was given a free hand to resolve our issues with #angeltax because come Monday morning, and the first formal notification acknowledging the matter was released.
We received multiple follow-on notifications since the first announcement and while each one was move in the right direction, we were far from a solution. Some industry bodies and Delhi-based founders took up the initiative of explaining the ground reality to CBDT and DPIIT. In February, DPIIT called for a meeting with startups. The discussion was an eye opener, this bureaucracy was no ‘villain’, here was a group of ‘real’ people trying to understand the complexity of our dilemma and working towards finding a solution.
A notification followed our meeting with DPIIT-- it relaxed the definition of startups and allowed to avail full ‘angel tax’ concession when raising funds. But the note had no mention of startups like us who were stuck with tax orders in the appeal stage. A couple of clauses in the notification were archaic, but we considered it a win, a step in the right direction.
The startup community continued the protest via Twitter and mainstream media and were almost giving up hope, when in the run-up to the Lok Sabha elections, #angeltax became a political issue. While addressing a group of entrepreneurs in Bangalore, an opposition leader promised to “abolish angel tax” if they came to power. We couldn’t have imagined this in our wildest dreams, but experience had taught us to accept these declarations with the proverbial pinch of salt!
Election or no, we continued to engage with the powers that be and on August 10, 2019, it seemed like someone in Udyog Bhawan heard our plea!
While the notification of August 10 should theoretically close the case of #angeltax, the clause that startups cannot park raised money in FD/Liquid funds, may still be putting some of our businesses at tax risk.
While we hope for an early resolution, our learning has been, when interacting with the executive -- we need to be patient as law-making is a long and arduous process.
Just like startups need to create capital efficiency without compromising growth, the executive and legislature need to get timing of creating and repealing laws right.
And if nothing works, we still have the judiciary!
Sreejith Moolayil is the Co-founder of True Elements.
First Published: Aug 20, 2019 3:49 PM IST