New Delhi: The tax department is only cracking down on investors in unlisted companies where there is a suspicion that the transaction is not genuine, finance secretary Hasmukh Adhia said on Monday, adding that genuine start-ups do not need to worry.
“We will protect genuine investors in start-ups. We are not asking questions from venture capitalists or non-resident investors who have invested in start-ups. Those start-ups registered with the department of industrial policy and promotion are also not under the scanner,” said Adhia, while addressing members of the Federation of Indian Chambers of Commerce and industry in a post budget discussion.
The taxman has sent notices to around 30 start-ups so far.
The tax provision, also called the ‘angel tax’, was introduced through the Finance Act 2012 as an anti-abuse provision as the government sought to stop the practice of issuing of shares in unlisted companies at a high premium.
The tax is levied on investments made in unlisted firms at valuations considered higher than the fair market valuation.
In September, Mint had reported on the tax department’s crackdown on some politicians who were accepting bribes by charging a high premium for shares in unlisted companies promoted by them and how this had raised concerns among several start-ups.
Speaking earlier in the day at the Confederation of Indian Industry (CII), Sushil Chandra, chairman, Central Board of Direct Taxes, said there have been instances of highly exaggerated valuation.
“It is not the case that we haven’t accepted valuation of every start-up. I found out from Bangalore and Mumbai that only 20-30 companies are there where valuation report has not been accepted. We have already issued instructions that we will not press for demand till the first appeal is decided,” Chandra said, adding taxpayers can approach an assessment panel if the tax demand is unreasonable and the demand could be stayed..
Also speaking at CII on the levy of long-term capital gains tax (LTCG), Adhia said there are more short-term transactions than long-term transactions on the stock exchanges.
“We have made no change in the (tax) rate on short-term transactions, it remains 15%. That means there is not much of a change there. In spite of putting a nominal 10% tax on LTCG on equity, it still remains a very subsidized regime,” he said, adding that the fall in stock prices cannot be attributed to levy of LTCG. “It is very unfortunate our move came at a very wrong time because of global markets also going down. There is a strong connection of all equity markets now. Naturally it would have ripple effect on Indian stock market also. It is not LTCG tax effect. Because we have grandfathered, the effect should not be there,” he said.livemint