Tag Archives: angel tax

Valuation of shares: Choosing the Valuer

Valuation in early stage companies should be market driven, as in, there is an investor willing to invest and a company which is primed to grow. The discussion between them should be the guiding factor.

However, this point is highly regulated and the valuation has to be proven to the satisfaction of the tax officers. Such discretionary powers are causing heart-burn.

Due to the many changes, there is confusion of which valuation method to use, who to take the valuation certificate from, etc.

Prior to October 2017, any practising chartered accountant having an experience for more than 10 years or a merchant banker, was recognised to determine the valuation of the shares.

On 18 October 2017, the Ministry of Corporate Affairs (MCA) mandated that the valuation report has to be obtained from a Registered Valuer[1] in certain cases. This entailed that any company issuing securities under section 42 or section 62(1) (c) of the Companies Act 2013 (the Act), would require the valuation report from Registered Valuer, who is registered with the Insolvency and Bankruptcy Board of India as per Companies (Registered Valuers and Valuation) Rules, 2017 (“Registered Valuer Rules).

However, in terms of Rule 11 of the Registered Valuer Rules, there was a transitional arrangement until 31 January 2019, to get a valuation report from a practising CA with 10 years experience.

In addition to these requirements and conditions, the Central Board of Direct Taxes (CBDT) on 24 May 2018 amended the Rule 11 UA of Income Tax Rules, 1962, by omitting the words “or an accountant” from rule 11UA (2)(b). This change meant that the valuation report has to be obtained only from a merchant banker.

Now comes the difficulty with compliance. Compliance under section 42 of the Act and Rule 11 UA is difficult, since there are very few merchant bankers, who are Registered Valuers too.

As a result, many investors ask the companies to get valuation certificates from all the different valuers.

Scenario 1: Requirement of valuation certificate from both Merchant Banker and Registered Valuer

Any company which is not a start-up India registered[2] and issuing equity shares/preference shares to persons who are residents in India (excluding SEBI registered funds) and such issuance is under Private Placement basis. As this issuance entails compliance under section 42, 62(1) (c) of the Act and section 56(2) of the Income Tax Act 1961, the valuation report from both merchant banker and registered valuer is mandatory.

Scenario 2: Requirement of valuation certificate only from Merchant Banker.

Any company which is not a start-up India registered and issuing equity shares/preference shares as rights issue under section 62(1) (a) (Rights Issue) of the Act either to persons residents in India or persons residents outside India, then valuation report from merchant banker is sufficient.

Scenario 3: Requirement of valuation certificate only from Registered Valuer

Under the following circumstances, the valuation report from Registered Valuer is sufficient:

(a) Any company which is not a start-up India registered and issuing debentures on private placement basis in terms of section 42, 62(1) (c) of the Act;

(b) Any company which is a start-up India registered and issuing equity shares /preference shares/ debentures;[3]

To present this as a checklist:

Type of Company Scenarios Valuation Report Requirement
Merchant Banker & Registered Valuer Only Merchant Banker Only Registered Valuer who is a Chartered Accountant
Start-up India registered Company (see point below) Issuance of Equity Shares/Preference Shares (Private Placement Basis) X X Yes
Issuance of Equity Shares/Preference Shares (Rights Issue) X

 

X Yes
Issuance of Debentures X X Yes
Other Companies Issuance of Equity Shares/Preference Shares (Private Placement Basis) Yes X X
Issuance of Equity Shares/Preference Shares (Rights Issue) X Yes X
Issuance of Debentures X X Yes

 There are several open points.

Question on applicability of section 56(2)(x)

An open point on valuation report from merchant banker in case of issuance of shares by start-up India registered companies, still requires clarification. This is because, section 56(2)(x) of the Income Tax Act, 1961 mandates to a person who receives shares from a company to get the valuation report from a merchant banker. While the start-up company is exempted only under section 56(2)(viib), receipt of such shares by a person is not exempted. This point still requires clarification from CBDT.

Other open questions:

While it seems that the requirement of valuation report is clear under various enactments, there is still ambiguity in terms of say: (a) whom to approach in case of a person who received shares from Startup India registered company; (b) how to deal when there is difference in fair market value arrived by Registered Valuer and merchant banker. This might require approaching a valuer who is recognised under Companies Act and Income Tax Act, who is both a Registered Valuer and a merchant banker.

Happy to hear your thoughts.

___________

[1] Registered Valuer means a person registered with the Insolvency and Bankruptcy Board of India in accordance with Registered Valuer Rules.

[2]  Companies registered with Department for Promotion of Industry and Internal Trade as Start-up.

[3] Start-up companies are exempted from section 56(2)(viib) of Income Tax Act 1961 pursuant to notification from CBDT dated 11 April 2018.

DPIIT registered Start-ups to get relief from Angel Tax. Recognition of Start-ups becomes easier

The Department for Promotion of Industry and Internal Trade (DPIIT) vide its press release dated 19 February 2019 has shared that the Minister of Commerce & Industry and Civil Aviation, Suresh Prabhu has cleared a proposal for simplifying the process of exemptions Start-ups under Section 56(2)(viib) of the Income Tax Act, 1961.

Earlier, the DPIIT had also issued notification number GSR 34(E) dated 16 January 2019 to provide relaxations with respect to exemptions from taxation of angel investments. However, the Indian Start-up community widely considered that further relaxations were required and several industry pressure groups had been in constant deliberations with government agencies to push for further reforms.

A round-table was organized on 4 February 2019 under the chairmanship of Secretary DPIIT with Start-ups, angel investors, and other stakeholders with a view to discuss the new measures undertaken by the DPIIT to address the Angel Tax issue and understand the mechanism to deal with it institutionally.

Vide gazette notification number GSR 127(E) (the “Notification”), the Ministry of Commerce and Industry, in supersession of the earlier Notification number GSR 34(E) has amended the Start-up Policy (GSR 364(E), dated 11 April 2018) to provide for the following key relaxations:

Broadening of the definition of ‘Start-up’ and revamp of recognition process

The definition of Start-ups will be expanded. Now an entity will be considered as a Start-ups up to a period of 10 years from the date of incorporation and registration in place of the earlier duration of 7 years.

Such an entity will continue to be recognised as a Start-up, if its turnover for any of the financial years since incorporation and registration has not exceeded INR 100 Crores in place of INR 25 Crores earlier.

The process of recognition of an eligible entity as Startup has also been simplified, the steps for DPIIT recognition now are as follows:

  1. Online application over mobile app or portal set-up by DPIIT;
  2. Application to be accompanied by a copy of Certificate of Incorporation or Registration, and a write-up about the nature of business and how it is working towards innovation and other criteria for recognition;
  3. The DPIIT may after calling for further documents or after making further enquiries may grant or reject the recognition request. In case of rejection, reasons will have to be stated.

Relaxations wrt Section 56(2)(viib)

All Start-ups recognized by DPIIT will be eligible for the exemption under Section 56(2)(viib) of the Income Tax Act, 1961. The aggregate amount of paid up share capital and share premium of the startup after the issue or proposed issue of shares should not exceed INR 25 Crores.

The abovementioned limit of INR 25 Crores as aggregate amount of paid up share capital and share premium, shall not include any considerations, meaning thereby the Start-ups may raise tax-free capital, from the following entities:

  1. Non-Residents
  2. Venture capital company or a venture capital fund;
  3. Listed company having a net worth of INR 100 Crores or turnover of at least INR 250 Crores, provided that its shares are frequently traded as per SEBI (Substantial Acquisition of Shares and Takeovers) Regulations, 2011

However, the Start-up availing the exemption must not be investing in any of the following assets:

  1. Building or land appurtenant thereto, being a residential/ non-residential property, other than that used by the Start-ups for the purposes of renting or held by it as stock-in-trade, in the ordinary course of business
  2. Loans and advances, other than loans or advances extended in the ordinary course of business by the Start-ups where the lending of money is substantial part of its business
  3. Capital contribution made to any other entity
  4. Shares and securities
  5. Any motor vehicle, aircraft, yacht or any other mode of transport, the actual cost of which exceeds INR 10 Lakhs, other than that held by the Start-ups for the purpose of plying, hiring, leasing or as stock-in-trade, in the ordinary course of business
  6. Jewellery other than that held by the Start-ups as stock-in-trade in the ordinary course of business
  7. Any other asset, whether in the nature of capital asset or otherwise, of the nature specified in sub-clauses (iv) to (ix) of clause (d) of Explanation to clause (vii) of sub-section (2) of section 56 of the Act

It is to be noted that the Notification also requires the Start-up to not invest in any of the above-mentioned assets for a period of 7 years from the end of the latest financial year in which the shares are issued at a premium.

Mode for availing exemption:

Any prior approval from any government agency to avail the exemption has also been done away with. The eligible Start-ups may file a duly signed self declaration in Form 2 annexed in the Notification, with the DPIIT for availing the tax exemption. The declaration shall thereafter be transmitted by the DPIIT to Central Board of Direct Taxes (CBDT).

Scope of the Notification:

The Notification shall apply irrespective of the dates on which the shares are issued by the Start-up from the date of its incorporation, except for the shares in respect of which an assessment order has been made under Income Tax Act, 1961.

Author: Mr. Avaneesh Satyang

 

Source:

Press Release: https://dipp.gov.in/sites/default/files/press_release_19022019.pdf

Gazette Notification: http://egazette.nic.in/WriteReadData/2019/198133.pdf

Proposal cleared for DPIIT registered Start-up to get exemption from Angel Tax, definition of Start-ups widened

The Department for Promotion of Industry and Internal Trade (DPIIT) vide its press release dated 19 February 2019 (Gazette notification is awaited) has shared that the Minister of Commerce & Industry and Civil Aviation, Suresh Prabhu has cleared a proposal for simplifying the process of exemptions Start-ups under Section 56(2)(viib) of the Income Tax Act, 1961.

Earlier the DPIIT had also issued Notification number GSR 364 (E) dated 16 January 2019 to provide relaxations with respect to exemptions from taxation of angel investments. However, the Indian Start-up community widely considered that further relaxations were required and several industry pressure groups had been in constant deliberations with government agencies to push for further reforms.

A round-table was organized on 4 February 2019 under the chairmanship of Secretary DPIIT with Start-ups, angel investors, and other stakeholders with a view to discuss the new measures undertaken by the DPIIT to address the Angel Tax issue and understand the mechanism to deal with it institutionally.

The DPIIT has also stated the changes shall be soon notified vide appropriate gazette Notification, which is expected soon.

As per the Press Release the key changes to be brought in by the Notification are as follows:

Broadening of the definition of ‘Start-up’

The definition of Start-ups will be expanded. Now an entity will be considered as a Start-ups upto a period of ten years from the date of incorporation and registration in place of the earlier duration of 7 years.

Such an entity will continue to be recognised as a Start-up, if its turnover for any of the financial years since incorporation and registration has not exceeded INR 100 Crores in place of INR 25 Crores earlier.

Relaxations wrt Section 56(2)(viib)

All Start-ups recognized by DPIIT will be eligible for the exemption under Section 56(2)(viib) of the Income Tax Act, 1961. The consideration so received for the proposed issue or issuance of shares shall be exempt up to an aggregate limit of INR 25 Crores.

The abovementioned limit of INR 25 Crores shall not include any considerations, meaning thereby the Start-ups may raise tax-free capital, from the following entities:

  1. Non-Residents
  2. Alternative Investment Funds- Category-I registered with SEBI
  3. Listed company having a net worth of INR 100 Crores or turnover of at least INR 250 Crores, provided that its shares are frequently traded as per SEBI (Substantial Acquisition of Shares and Takeovers) Regulations, 2011.

However, the Start-up availing the exemption must not be investing in any of the following assets:

  1. Building or land appurtenant thereto, being a residential/ non-residential property, other than that used by the Start-ups for the purposes of renting or held by it as stock-in-trade, in the ordinary course of business
  2. Loans and advances, other than loans or advances extended in the ordinary course of business by the Start-ups where the lending of money is substantial part of its business
  3. Capital contribution made to any other entity
  4. Shares and securities
  5. Any motor vehicle, aircraft, yacht or any other mode of transport, the actual cost of which exceeds INR 10 Lakhs, other than that held by the Start-ups for the purpose of plying, hiring, leasing or as stock-in-trade, in the ordinary course of business
  6. Jewellery other than that held by the Start-ups as stock-in-trade in the ordinary course of business
  7. Any other asset, whether in the nature of capital asset or otherwise, of the nature specified in sub-clauses (iv) to (ix) of clause (d) of Explanation to clause (vii) of sub-section (2) of section 56 of the Act

Mode for availing exemption:

Any prior approval from any government agency to avail the exemption has also been done away with. The eligible Start-ups may file a duly signed self declaration with the DPIIT for availing the tax exemption. The declaration shall thereafter be transmitted by the DPIIT to CBDT.

Source: https://dipp.gov.in/sites/default/files/press_release_19022019.pdf

Fund raising and valuation: Company can choose the methodology

The recent ruling by the income tax appellate tribunal (“Appellate Tribunal”) of Jaipur dated 12 July 2018 in the case of Rameshwaram Strong Glass Private Limited v ITO has come as a significant relief for tax payers. In this matter, the Appellate Tribunal has held that the income tax laws in India gives an option to the assessee under rule 11UA of the Income Tax Rules, 1962 (“Rules”) to adopt either the break-up value method or the Discounted Free Cash Flow (“DCF”) method for valuation purposes.

Brief facts of the case: Rameshwaram Strong Glass Private Limited (the “Company”) incorporated on 31 January 2011, is a closely held company manufacturing toughened glass. There was no business conducted by the Company from assessment years 2011-2012 to 2013-2014 except for purchase of land. During the assessment year 2013-2014, the Company issued shares at a premium as per the valuation report prepared by a chartered accountant as per the DCF valuation method. The assessing officer (“AO”) claimed that the break-up value method was to be adopted by the Company instead of the DCF method for the purposes of valuation. As per the AO, since the DCF method was adopted instead of the break-up value method, the Company received additional money through the issue of these shares. Also, the AO claimed that the valuation report was incorrect and not justified and the actual premium of the shares should have been lower than what was mentioned in the valuation report. The Company submitted a revised valuation report to the commissioner of income tax, appeals (“First Appellate Authority”) in which a bona-fide error in the earlier report was corrected. The Company also contended that the amount of share premium is a commercial decision which does not require justification under law and the shareholders has the discretion to subscribe to the same. However, the First Appellate Authority directed the Company to prepare the valuation report based on the actual figures and not on estimates. Based on this revised report, the First Appellate Authority held that the earlier valuation report prepared was incorrect, based on imaginary figures and without any basis.

The Company appealed against the order of the First Appellate Authority to the Appellate Tribunal. One of the contentions of the Company was that the Rules allow the Company to choose between the DCF method or the break-up value method. The valuation method adopted by the Company cannot be challenged by the AO as long as it is a recognized method of valuation. Also, the Company contended that the requirement of the tax authority to give valuation report based on the actual figures and then comparing the same with the valuation report prepared through DCF method is not correct since the valuation under DCF method is based on future estimates based on revenue, expenses, investment, etc. The value is derived from the future profitability or cash flows of the Company. Also, since this is a newly formed company, the DCF valuation method had to be used as the capital base of the Company would be very less.

The Appellate Tribunal agreed with the contention of the Company stating that the assessee has the right to choose the method of valuation.  The Rules clearly provide an option to the assesse to follow either the DCF valuation method or the break-up value method. The only condition cast upon an assessee is that the valuation report has to be given by a merchant banker or a chartered accountant using the DCF method who have expertise in valuation of shares and securities. When a particular method of valuation is provided under law and when the assessee has chosen a particular method, directing the assessee to follow a particular method is beyond the powers of the income tax authority. The AO can scrutinize the valuation report if there are arithmetical errors and make necessary adjustments or alterations. However, if the assumptions made in the report are erroneous or contradictory, the authority may call for independent valuer’s report or invite his comments as the AO is not an expert. Also, the First Appellate Authority’s direction to the Company to give the valuation based on actual figures and then comparing such valuation report with that of the earlier report is contrary to the provisions of law since the DCF valuation method is based on future estimates. Therefore, the Appellate Tribunal held that the valuation report prepared by the chartered accountant using the DCF method was proper and the action of the AO and the First Appellate Authority was invalid.

It remains to be seen whether the judgment of the Appellate Tribunal goes up to the Supreme Court. However, as of now, this comes as a relief, in light of the many nuances that we discussed in our earlier post on Early Stage Valuations: Legislative Context and Continuing Saga of Angel Tax.

Note: The Board of Direct Taxes (CBDT) issued a notification on 24 May 2018, whereby the word “or an accountant” from Rule 11UA was omitted. Therefore, if a company is issuing equity shares to resident individuals, merchant banker valuation would be mandatory.

Author: Paul Albert

Early Stage Valuations: Legislative Context and Continuing Saga of Angel Tax

The last couple of months have been quite interesting in the startup ecosystem in India, given the legislative changes in the context of Section 56(2)(viib) of the Income Tax Act, 1961, or what we know as the ‘Angel Tax’ provision. This post is an attempt to analyse the legislative context and critically evaluate the current situation.

Angel tax

Credit: MoneyControl

Introduction of Angel Tax

The legislative context of Angel Tax, introduced through the Finance Act 2012, is rather fascinating. The then Minister of Finance Mr. Pranab Mukherjee introduced his Budget Speech of 2012 – 2013, on a reformative note mentioning the various challenges of a global recession that the Indian economy was striving not to get affected by at the concerned point of time in reference. The tone was very clear on how the Indian economy was then at a juncture to take hard decisions. One of the five objectives that the Union Ministry sought to address was “… the problem of black money and corruption in public life”. A series of measures were therefore proposed “to deter the generation and use of unaccounted money”, including “increasing the onus of proof on closely held companies for funds received from shareholders as well as taxing share premium in excess of fair market value”, taxable at the  highest rate, irrespective of the slab of income.[1]

There are some views that this proposal was also made in the aftermath of certain money laundering investigations launched about the same time, where bribe money was allegedly laundered by routing it through various individuals and companies and getting investments at a high premium.[2]

Interestingly, investments in a private limited company at that point of time was being governed primarily under the Companies Act, 1956, which lacked the severity and rigour brought in by the private placement mechanism and preferential allotment modes, under the Companies Act, 2013, in a bid to provide better protection to stakeholders by enforcing accountability and transparency.

Industry Woes and Consequences

  • The language of Section 56(2)(viib), as introduced by the Finance Act 2012, provides for taxation of consideration received by private limited companies for issue of shares, in excess of fair market value (FMV) of the shares. Exemption under the same is available if such consideration is received from ‘venture capital undertaking’ or ‘venture capital company’ or ‘venture capital fund’ and any other ‘class of persons’ as may be notified by the Central Government in this behalf.
  • FMV would be as determined in accordance with Rules 11U and 11UA of the Income Tax Rules, 1962 or as may be substantiated by the company to the satisfaction of the Assessing Officer based on value of assets (including intangible assets, goodwill, intellectual property, business or commercial rights, etc.), whichever is higher.
  • Rule 11UA provided for the computation of valuation of unquoted equity shares under Section 56(2)(viib), either as per a mathematical formula, or as determined by a merchant banker or an accountant as per the Discounted Free Cash Flow (DCF) method, at the option of the assessee.

As a consequence, early stage companies started moving ahead with chartered accountant determined valuations for investments raised from resident angel investors, following the DCF method. This was also in parity with the requirement for the private placement process under Rule 13 of the Companies (Share Capital and Debenture) Rules, 2014. However, the risk still remained to the extent the same could not be substantiated to the satisfaction of the Assessing Officers, upon receipt of a notice in this regard.

Assessment to the satisfaction of the Assessing Officer, on a literal interpretation, may be considered as taking a step towards understanding the business perspective while putting in place right checks and balances for curbing money laundering and corruption. However, any element of satisfaction, has its own nuances and brings in a certain amount of discretion that is required to be exercised with caution, especially in the context of varied business ideas and models that could be novel in the Indian context and therefore would require a greater understanding and knowledge of the intellectual property or goodwill or business or commercial rights thereof. The understanding would also have to be basis different commercial contexts, such as the implementation of anti-dilution rights. Such rights are typically available to financial investors and often entail issuance of additional shares at minimum price, to give effect to commercially agreed upon rights.

Much has been written on the multiple incidents of startups receiving notices under Section 56(2)(viib), having to justify commercially driven business decisions. This has led to various representations to the Government by industry bodies, to take a re-look and if possible bring down Section 56(2)(viib).

The Plethora of Subsequent Legislative Changes

The first sign of relief came with the introduction of the Startup India Action Plan launched by Prime Minister Narendra Modi on 16 January 2016 (the “Action Plan”), as part of a flagship initiative of the Government of India for boosting the startup ecosystem in India.

  • The Action Plan brought forth a definition of ‘Startup’ and conditionalities based on which a Startup could be considered for recognition under the Action Plan. The Action Plan also recognised that it is difficult to determine FMV of shares in the context of Startups, which might very well be just at conceptualization or development stage and in most cases capital investments in Startups would be made at much higher valuations than what could be traditionally considered as FMV, which is the exact scenario that falls under the ambit of Section 56(2)(viib).
  • With this background, the Action Plan extended the exemption under Section 56(2)(viib) to investments made by incubators in Startups as well.
  • What followed a few months later is a notification dated 14 June 2016, issued by the Central Board of Direct Taxes (CBDT) that further extended the exemption, in the context of recognised Startups to ‘person’ as defined under Section 2(31) of the Income Tax Act, 1961. This includes individual, hindu undivided family, company, firm, association of persons, local authority, and any other artificial juridical person.

This led many early stage companies to strive for recognition under the Action Plan. Unrecognised startups/early stage companies, however, continued to struggle with the woes of the Angel Tax regime.

Amidst all of this, the Department of Industrial Policy and Promotion (DIPP) has now issued a  notification dated 11 April 2018 that introduces the following additional nuances for recognised ‘Startups’ also:-

  • Any ‘Startup’ falling under the ambit of the definition provided as such in the notification and being a private limited company, can now be considered for an ‘approval’ for the purposes of Section 56(2)(viib), if certain conditionalities are fulfilled.
  • The conditionalities include – (a) the aggregate amount of paid up share capital and share premium after the proposed issue, not exceeding Rs. 10 Crores;

‘Proposed’ could be read as ‘prior approval’, meaning a recognised ‘Startup’ would now have to wait for an approval before they can raise seed level funds from resident angel investors, which are many a times, crucial for jet-setting the business. Speedy execution and implementation being the foremost criteria for raising such seed level funds by early stage companies, introducing an element of ‘prior approval’ could be massively counter-productive.

Further, the process appears to be each investment based and not a one time approval.

(b) The investor/proposed investor has to have an average returned income of at least Rs. 25 Lakhs for the 3 preceding financial years or the net worth of at least Rs. 2 Crores on the last date of the preceding financial year;

Although this might be akin to the general theme of deterring the generation and use of unaccounted money, the question that one might have is whether the intent is to then tax and therefore, restrict angels, friends and family driven or similar early stage investments,  below the given threshold.

Quite interestingly, the form in which a Startup has to apply for the approval not only includes disclosure of such details of the investor, as mentioned above, but it also requires the name, PAN and address of the existing shareholders (without any qualification as to resident or non-resident) along with the price point at which they had invested.

(c) the Startup also has to obtain a report from a merchant banker specifying the FMV in accordance with Rule 11UA.

Early stage investments raised from resident angels, most often, are not very significant amounts and mainly utilised for helping businesses get a footing till such time that they reach validation stages and therefore seek larger amounts as venture capital funding or other forms of institutional funding. Introducing a ‘merchant banker valuation’ justification for such investments, would not only mean increase in cost to companies but also be a deterrent to raising small funds.

Within a couple of months from the above-mentioned DIPP notification, the CBDT issued 2 notifications dated 24 May 2018, one omitting the word ‘or an accountant’ from Rule 11UA, and the other extending the exemption under Section 56(2)(viib) to consideration received in accordance with the approval granted by the Board[3] under the DPP notification.

Current Position

With all of the above changes, the current position with respect to valuations and Section 56(2(viib) stand as follows:-

  • Receiving Investments from Resident Investors by Recognised Startups – Approval mechanism, requiring merchant banker valuation, unless investment is being received from exempted categories.
  • Receiving Investments from Resident Investors by Unrecognised startups/private limited companies – No approval mechanism However, merchant banker valuation would still be required, unless investment is being received from exempted categories.
  • Receiving Investments from Non-Resident Investors by Unrecognised startups/private limited companies – Section 56(2)(viib) is not applicable and therefore companies could still make do with a chartered accountant valuation report that works well both under the Foreign Exchange Management related regulations and under the Companies Act, 2013.

In our view, the situation detailed above needs a closer evaluation by the Government, so that while curbing corruption and money laundering, business is also facilitated. The general theme in the country currently being ensuring ease of doing business, a more balanced approach is required with respect to taxation also. More importantly, direct taxation being a concept linked with direct gains, the question that really needs to be evaluated here is whether at all early stage “investments” can be construed as direct gains.

Author: Sohini Mandal, Associate Partner

[1] Budget 2012-2013, Speech of Pranab Mukherjee, Minister of Finance, March 16, 2012, as available at https://www.finmin.nic.in/sites/default/files/bs1.pdf?download=1 (visited on June 12, 2018)

[2] Nakul Saxena and Siddharth Pai, Policy Expert Council Members, iSpirt Foundation, The History and Future of Angel Tax, February 12, 2018, as available at http://pn.ispirt.in/the-history-and-future-of-angel-tax/ (visited on June 11, 2018)

[3] The DIPP notification dated 11 April 2018 also provides for approvals to be provided by an Inter Ministerial Board of Certification (the “Board”), to be formed with 8 members from the DIPP, Ministry of Corporate Affairs, Reserve Bank of India, Securities and Exchange Board of India, CBDT, etc.