Government Circular on Angel Tax : Core Issue continues to be unresolved

DIPP (Department of Industrial Policy and Promotion) has published a recent circular tweaking definitions of a startup and angel investors and has defined a process for exemption under Section 56 of Income Tax Act Which startup can approach DIPP for exemption Under Section 56? ●      The company has to be recognised by DIPP as a startup ●      Paid up share capital, should not exceed INR 10 Crores ●      The investor/ proposed investor fulfills either of the following criteria:    ○  Average Income of INR 25 Lakhs for preceding 3 financial years    ○  Networth of INR 2 crores ●      Report from a merchant banker specifying the fair market value of shares ●     The approval will come from an Inter Ministerial Board comprising    ○  Additional Secretary, Department of Industrial Policy and Promotion, Convener    ○   Representative of Ministry of Corporate Affairs, Member    ○   Representative of Ministry of Electronics and Information Technology, Member    ○   Representative of Department of Biotechnology, Member    ○   Representative of Department of Science & Technology, Member    ○   Representative of Central Board of Direct Taxes, Member    ○   Representative of Reserve Bank of India, Member    ○   Representative of Securities and Exchange Board of India, Member Our Take While this circular has increased the total paid up capital and has put a clearer definition around who will qualify as an investor, the key issue is still unresolved of the approval from the Inter Ministerial Board for exemption from “Angel Tax” or Section 56 of Income Tax Act. The process of getting a fair value certification from a Merchant Banker will only add to the compliance costs and time for the startups, who are already juggling with many too many variables in trying to grow their startup. In an environment where investors are taking calls to back startups, which are inherently risky investments with a high mortality rate, this approval process will continue to act as a dampener for the angel investment ecosystem.

Mumbai Angels Network: Strides Taken In 2017

As the financial year draws to a close, we would like to take this opportunity to highlight how our network has grown over the past 12 months. 1.Mumbai Angels Network is now in 6 cities with 250+ investors. This year our network increased its footprint across the country with the addition of 2 new chapters: Hyderabad and Pune. We have come together for the first of its kind partnership, with Calcutta Angels, largest network in the east. 2.We are the first network to launch MANTs, a digital currency to harness, measure and reward member engagement. In a short span of 6 months, the MANTs engagement index has shot up from 300 to 1200! 3.Our curation and ability to bring unique deals to investors is now the industry benchmark. We invested across diverse ventures ranging from anti counterfeiting and drones analytics to liquid biopsy and supercapacitors based batteries. 4.We invested INR 15 crores in 12 high potential, high growth startups this year. The smallest investment we made was INR 48 lacs, the highest was INR 3.5 crores. 75 members invested in these companies. 5.Our deal closure process has become an industry best practice with the closure timelines being cut down by one third. 6.We now have a 119 companies strong portfolio, with 30 exits till date. This accounts for about 25% companies exited, comparable to global standards for angel investing. 7.This year alone we had 3 exits, with an average of 1.5X return multiple for our investors. A total of 66 members invested INR 4 crores in these companies. 4 more exits are in active closure, you should see the press release soon. 8.Our start-up showcases are known for their format, time adherence and overall TV show quality! Most members mention our format as the highlight of their investing experience. 9.We conducted several networking and educational events across our chapters. Our Angel Investing Masterclass is recognized as a marquee platform. 10.We continue to engage with the government on all policy related matters that impact investing in startups. Our network today is on all tables wherever policy in startup investing is being discussed, representing your interests. We will soon be announcing several new wealth creation initiatives, building an even stronger platform for you to access the best startups, co-invest with like minded savvy investors, manage your investments and learn the craft of angel investing! Thank you for your continued support in growing our community and for playing a critical role in evolving India’s startup ecosystem Warm Regards Nandini Mansinghka Chairperson Mumbai Angels Network