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Angels & Demons

Aprajita Sharma     January 7, 2019

At a time when the taxman is slapping angel tax notices on start-ups on premium valuations, the governments repeated assurances promising there will be no coercive action, is comforting.

Numbers arent only how early age investors value start-ups; they bet on intangibles such as passion, innovation, and goodwill. Explaining their idea of high premium to tax officers is tough, since it is subjective (and based on their own calculations of future growth). Since the onus is on start-ups to justify valuations, and the law allows the taxman discretion in arriving at the FMV, this will only deter innovation and kill early age investment.

Initial judgment doesn't always prove right; and valuations may slide due to unforeseen business circumstances. In that scenario its draconian to retrospectively tax start-ups on funds invested above the FMV. Lets hope the Tax department withdraws these notices; and doesnt accuse start-ups of tax evasion, all the while claiming it wants to curb money laundering.

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