1209, 2014

Jama-Kharchi and the Conversion of Black to White

By |September 12th, 2014|Categories: JamaKharchi, StartupTax|2 Comments

For the uninitiated among us (and I am one) it seems there’s this concept called “Jama Kharchi”, which is about converting black money to white. Jama-kharchi , of “accomodating entry” companies which basically make two kind of entities meet:

  • One that wants to reduce its profits (and thus, taxes) by showing purchase entries
  • Two, that that wants to shore up sales because they will get higher credit

The Jama-kharchi companies will “accomodate” accounting entries that help both these companies and charge a 2% to 4% commission to be the go-betweeen.

[…]

1709, 2013

SEBI Finalizes Angel Fund Regulations

By |September 17th, 2013|Categories: Startups, StartupTax|Comments Off on SEBI Finalizes Angel Fund Regulations

SEBI has notified final regulations for angel funds. I have noted many of these in the past, so for background:

2606, 2013

Angel Fund Guidelines: Helps the Superangels, Keeps Out Smaller Investors

By |June 26th, 2013|Categories: SEBI, Startups, StartupTax|Comments Off on Angel Fund Guidelines: Helps the Superangels, Keeps Out Smaller Investors

SEBI has introduced new guidelines for Angel Funds. As I’ve said recently, this is an absolutely important requirement in order for startups to avoid the “Startup Tax” (, a tax regulation that classifies investment as “income” if it is at a premium to the “par” value of a share of a company.

(Read the free Startup Tax e-Book)

The tax laws allow angel funds to skirt this rule, but what an angel fund actually means was left to SEBI. And this is what SEBI has said, in simple terms:

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2006, 2013

Speculation: SEBI Angel Fund Rules Could Help Ease Startup Tax

By |June 20th, 2013|Categories: SEBI, StartupTax|Comments Off on Speculation: SEBI Angel Fund Rules Could Help Ease Startup Tax

The Finance Minister had in his budget speech mentioned that:

SEBI will prescribe requirements for angel investor pools by which they can be registered as Category 1 AIF venture capital funds.

(Read: Startups in Budget 2013, a Mixed Bag)

CNBC has the news that SEBI might announce the requirements on July 25 (speculation):

In an exclusive to CNBC-TV18, sources say the Sebi board may announce rules for angel funds on June 25. Some of these rules may include angel fund investment to be limited […]

103, 2013

Startups In Budget 2013, A Mixed Bag

By |March 1st, 2013|Categories: Budget2013, Startups, StartupTax|1 Comment

What’s in it for startups? Last year, we had a horrible section (Read the full e-book) that still works against angel investors in early stage startups. (Angel investments would be taxed if they couldn’t prove that an investment had a sound valuation backing it – and early stage startups are wet-finger-in-the-air valuations)

The Return of the Rs. 1 Crore Angel, Or Something

In Budget 2013, there are some interesting changes. First, to solve the above problem in last year’s budget, this year the FM said that:

SEBI will prescribe requirements for angel investor […]

906, 2012

Jagan-Srinivasan Enquiry Explains the Startup Tax

By |June 9th, 2012|Categories: StartupTax|1 Comment

When the CBI investigated BCCI Chief N. Srinivasan’s company, India Cements, they seem to have uncovered why the “Startup Tax” was introduced in the budget. (Read Full Set of Posts) The company invested in companies owned by Jagan Reddy, son of the late YS Rajasekhara Reddy, who was the Chief Minister of Andhra Pradesh, in a way that the CBI says was a disguised bribe. From Firstpost:

According to the FIR, India Cements made following investments in Jagan Reddy’s Companies:

– Rs 5 crore in Carmel Asia Holding Pvt Ltd, one of the 36 companies created by Jagan Mohan […]

705, 2012

Startup Tax: Diluted To Allow "Angels"?

By |May 7th, 2012|Categories: Budget2012, StartupTax|Comments Off on Startup Tax: Diluted To Allow "Angels"?

The FM, in his remarks while introducing the Finance Bill today, provided some relief to the startup community by potentially allowing angel investments to not attract the Startup tax.

(For More: Read the E-Book, and all posts)

It has been proposed in the Finance Bill that any consideration received by a closely held
company in excess of the fair market value  of its shares would be taxable.  Considering the
concerns raised by "angel" investors who invest in start-up […]

2703, 2012

FREE E-Book: The Startup Tax in India

By |March 27th, 2012|Categories: StartupTax|1 Comment

I consolidated material from all the posts on the Startup Tax in India and put it into an easy-to-download E-Book (PDF). I hope you like it!

StartupTaxBig

As things change, I will update the E-Book.

2103, 2012

FAQ on the Startup Tax

By |March 21st, 2012|Categories: Budget2012, StartupTax|1 Comment

Lots of questions have come in on the Startup tax post (Angel Investors Beware: Funding Startups Could be Classified as Income) and I’ve tried to address them here. The idea, for those who don’t have the time, is that investments in any company must now be “justified” to a tax officer, unless they are by a VC fund. If the tax officer finds that the money was more than “fair market value” using a set of criteria that are irrelevant to most tech startups today (valuing physical assets etc.), then whatever is extra will be recognised as “income” on […]

2103, 2012

Ramadorai, Ex-TCS-CEO, Will Advise Govt On Startup Tax

By |March 21st, 2012|Categories: Budget2012, StartupTax|Comments Off on Ramadorai, Ex-TCS-CEO, Will Advise Govt On Startup Tax

The Startup Tax situation has elicited serious response. Pluggd.in has reported that the Ex-CEO of TCS, S. Ramadorai, has been asked to advise the government on the issue.

Indian government has asked S. Ramadorai, ex-CEO of TCS to advise the government on startup tax bill. S Ramadorai currently serves as an advisor to the Prime Minister of India in the National Council on Skill Development, Government of India. He holds a rank equivalent to an Indian Cabinet Minister.

More from ET: FinMin says New Safeguards For Angel Investors

[…]

1903, 2012

Startup Tax: Becoming a Venture Capital Fund

By |March 19th, 2012|Categories: StartupTax|1 Comment

Also Read: Angel Investors Beware: Funding Startups Could be Classified as Income

Many investors have asked, privately, if they can set up a Venture Capital fund, because any company such funds invest in, will no longer get the startup tax.

Such VC funds have regulations from SEBI. You will want to read:

The burning questions, though are:

Who can apply?

Any […]

1803, 2012

Private Cos: Investors Must Reveal Source Of Funds

By |March 18th, 2012|Categories: Budget2012, Startups, StartupTax|Comments Off on Private Cos: Investors Must Reveal Source Of Funds

Also Read: Angel Investors Beware: Funding Startups Could be Classified as Income

Yet another amendment in the budget will open a can of worms, though this one might seem roughly acceptable, even if it is a big bother. In the Budget, another unnoticed clause requires an unlisted company to know the source of the funds of every single investment of each investor. The only exception is for money received through venture capital funds.

In the Finance Bill, you will see this clause (Search for “section 68” – it is item no. 22, on page 10)

In section 68 of the Income-tax […]

1703, 2012

Startup Tax: Tax Dept Tells You How To Value Your Startup

By |March 17th, 2012|Categories: StartupTax|Comments Off on Startup Tax: Tax Dept Tells You How To Value Your Startup

We know now that the new amendment in the budget will attempt to tax angel investors that want to buy into a company at a “premium” valuation, a concept rife in the startup world.

The “Startup Tax” article has generated some excellent responses. Among them is Rajesh’s reply which I’d like to highlight in a separate post: Rajesh says:

You can always prove the FMV and we will hopefully know it in the fineprints. There is however an existing notification (NOTIFICATION NO 23/2010, Dated: April 8, 2010) for valuing unquoted shares and securities. You may find the details of this […]

1703, 2012

Angel Investors Beware: Funding Startups Could be Classified as Income

By |March 17th, 2012|Categories: Budget2012, Startups, StartupTax|27 Comments

Startups, founders and Angel investors, please note the change in Budget 2012 that has been slipped in, innocuously. An investment in any private company could be classified as “income” unless you can justify the investment and valuation to a tax officer. Such income is taxable.

Look at the “Memorandum” under section “Share premium in excess of the fair market value to be treated as income” (Page 8).

It is proposed to insert a new clause in section 56(2). The new clause will apply where a company, not being a company in which the public are substantially interested, receives, in any previous year, from any person being a resident, any consideration
for issue of shares. In such a case if the consideration received for issue of shares exceeds the face value of such shares, the aggregate consideration received for such shares as exceeds the fair market value of the shares shall be chargeable to income tax under the head “Income from other sources. However, this provision shall not apply where the consideration for issue of shares is received by a venture capital undertaking from a venture capital company or a venture capital fund.

Usually a startup gets funding from an angel investor in exchange for equity. The valuation of the startup is usually based on an idea, with very little else to support it. (Hardly any computers or machinery or even hard investments by the founders). A new startup with an idea and perhaps a prototype built at home may get a Rs. 10 lakh funding from an angel investor for 10% of the company. […]