In a major relief to startups,
the government on Tuesday expanded the turnover criteria and widened age cap of startups from 7 to 10 years.
To discuss the development, CNBC-TV18 spoke with Padmaja Ruparel, president of Indian Angel Network. Started in April 2006, the Indian Angel Network is a network of angel investors keen to invest in early-stage businesses.
Here is the edited transcript of the interview:
Q: Your thoughts on the gazette notification which has come through and does it provide the much-needed relief that startups were looking for in terms of the angel tax?
A: I would like to put on record that we at Indian Angel Network, and on behalf of the entire angel investing ecosystem, we are extremely grateful and thankful to DIPP under the leadership of Mr Ramesh Abhishek as well as Central Board of Direct Taxes (CBDT), which have both moved with the blessings of the PMO. I think what is coming out now is a great step forward for the Indian startup's ecosystem to be unshackled and what the notification is saying and I think your colleague already mentioned there are domestic pools of money that are getting unlocked with this notification. Companies will now, who don’t have a turnover of above Rs 100 crore and are now raising up to Rs 25 crore, will now be exempt.
Number two, which is also very important, is that listed companies with a net worth of above Rs 100 crore and turnover of Rs 250 crore are also able to invest under this without any questions and I think this will unlock a lot of money coming in from listed money.
The third, which I think is really exciting, is that startups invested by non -resident and alternative investment fund (AIF) category, their amount will be beyond Rs 25 crore. So honestly what is happening is Section 56 impact to startups, which we have been fighting for the last six years, which was actually promulgated in the last previous government’s budget, has been diluted dramatically in favour and made it a more enabling ecosystem for startups. I really want to thank the government, DIPP, CBDT and of course the PMO.
This a great step forward and I think the process, I am sure, would have been thought through as well, so I am very bullish and I think this is a great step forward.
Q: You have pointed out the fact that this might enable domestic pools of capital to back startups in India. But I want to talk about some of the caveats that are attached to the gazette notification for the exemption that has come in. Basically, they say that eligible startups only have to file duly signed self-declaration with the DIPP for availing the exemptions. DIPP shall transmit this declaration to the CBDT. There is no requirement for making an application for exemption under Section 56. There will be no case to case examination of startups for exemption and that the valuation of shares is no more a criterion for exemption of investments into eligible startups. So do you believe that with this some of the issues that have really been the ones bothering startups recently will be addressed?
A: Yes, I think so because one of the big issues that were happening is that the income tax department was questioning the valuation. With this notification, the focus on valuation is completely gone and that is correct because startups are innovative startups and by definition, there is no history that the startup has. So how do you arrive at a valuation? The value of the startup is in the eyes on the beholder, which is the investor and agreed by the promoter. This notification, by removing the focus on valuation and removing it as a parameter, I think is clearly giving a very strong message that valuation, first of all, is not on the card for any scrutiny and secondly, I think innovation is invaluable in some ways and therefore it has to be understood more by the people who invest in it and who build the company. I completely agree with this that the valuation is not part of it.Number two, it is also giving relief to the ecosystem by increasing the turnover of startups to Rs 100 crore because now India is becoming not only the fastest growing, but we are seeing companies here which are getting global unicorns and this is actually acknowledging the fact that startups are going to create the new economy and they will have revenues beyond Rs 25 crore. That is also a reflection of how the ecosystem can move going forward and it is a very encouraging parameter that has been put through by the notification, actually unleashing startups to say 'go make it happen and create the new India'.