Starting Up in India gets even more taxing

It’s bad enough that India ranks really low in the ‘ease of doing business’ and other such indices. Now, from that bastion of logical thinking and foresight, the government of India, comes this little gem in the Income Tax Act:

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 incometax 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.

Basically, this bill is being introduced to aid in the control of black money. Effectively, it treats the investment a startup receives from angel investors as income and requires that the startup pay tax on the same amount. So if a startup receives $20,000 in seed funding; $6000 goes to fund seeds for the bird-brained government. Nice, not.

Read a detailed post about India’s proposed StartUp Tax here.