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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.
More in the news
- 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.