Corruption main challenge for start-ups: study

Why is it in the news?
    • According to a report by citizens’ engagement forum Local Circles, a large number of start-ups, small and medium enterprises view corruption and bureaucratic inefficiencies, securing loans as major challenges in 2019.
 
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  • The report was based on responses from over 15,000 start-ups, SMEs and entrepreneurs.
  • It found 45% respondents saying that corruption or bureaucratic inefficiencies as the top challenge, followed by securing loans and funding (37%), and business growth (18%).
  • Angel tax is one area that falls under corruption and bureaucratic inefficiencies.
  • Several start-ups and angel investors have raised concerns over notices received from the authorities related to taxation of angel funds.
  • The Centre has set up a panel to look into the taxation issues faced by start-ups and angel investors.
  • The study noted that 38% of the respondents said they had received at least one notice.
  • Angel tax is a tax levied on investments made by Angel investors in startups or companies.
  • To clarify, the entire investment is not taxed – only the amount that is considered above “fair value” valuations of the startup, classified as ‘income from other sources’ in the Income Tax Act of India.
  • The angel tax dates back to the Finance Budget of 2012 when then finance minister announced the introduction of the Finance Act 2012.
  • However, government issued a notification in April 2018 to give exemption to startups in cases where the total investment including funding from angel investors did not exceed Rs 10 crore.
  • For the exemption, startups were also required to get approval from an inter-ministerial board and a certificate of valuation by a merchant banker.
  • According to the notification, the exemption would apply only when the angel investor had a minimum net worth of Rs 2 crore or an average returned income of over Rs.25 lakh in the preceding three financial years. 
  • The taxation is a major thorn in the side for many ventures and has forced many angel investors to shy away from offering financial support to startup dreams.
Angel investors
    • Angel investors invest in small startups or entrepreneurs.
    • Often, angel investors are among an entrepreneur's family and friends.
    • Angel investors get equity share(Company share for that invested money based on valuation of the company).
    • If a start up gets successful like flipkart,  Paytm...etc. This angels gets huge returns for their investment. If it fails they loose.
    • The capital angel investors provide may also be a one-time investment to help the business propel or an ongoing injection of money to support and carry the company through its difficult early stages.
 
Source
The Hindu, ET.
 
 
 
Posted by Jawwad Kazi on 4th Jan 2019