Indian Government To Tax Angel Funding

kousik writes "The Indian Government proposes to tax Angel Investment as income and is asking start-ups to pay a 30% tax on the funding. From the article: 'Ravi Kiran, co-founder of middle-India advisory Friends of Ambition (FoA) and member of Indian Angel Network told Firstpost: “There seems to certainly have been an error in understanding on the part of the Budget makers. If this is pushed through, it will spell serious trouble for the angel investor and entrepreneurship space. I feel this is an error and should be corrected quickly before it leads to confusion.”'"

Comments

Selling shares is debt, not income

[EmagGeek]

It's clear the legislators have zero clue what investment means.

When a company receives startup funding, it is in exchange for ownership shares. That makes it borrowing, not income. Shareholder Equity offsets that funding on the balance sheet.

Re:Selling shares is debt, not income

[whoever57]

It's clear the legislators have zero clue what investment means.

True enough.

When a company receives startup funding, it is in exchange for ownership shares. That makes it borrowing, not income. Shareholder Equity offsets that funding on the balance sheet.

Now you are showing your ignorance. It's not a loan. It's not borrowing.

But the summary doesn't tell the whole story (I know, what a shock!):

There is a Budget proposal to tax at 30 percent any investment received by closely held companies where the aggregate investment exceeds the fair market value of shares.

Most likely, this is aimed at money laundering. The uncertainty caused by this and the possible corruption amonst those who enforce this are likely to stifle angel investment.

Wow

[JWW]

And her I thought regulatory uncertainty and IP law we stifling innovation.

The Indians are taking innovation killing to a whole new level.

Re:Wow

[Anonymous Coward]

Don't be live the summary. The Indians are worried about tax dodges exploiting a loophole by pretending it is investment when it is just hiding cash in a shell organization.

Re:Wow

[Sir_Sri]

Sure they are. That's not the point. Everyone knows india is corrupt top to bottom, and there are people using every means possible to dodge tax, legally or otherwise.

The issue is whether or not the law would, if applied, seriously stifle investment. Which, assuming the text is correct, it would. The intent of laws and there impact don't always align, this seems to be one of those cases, where either the people who wrote the law don't really grasp the spillover effects, or the people who are writing about it don't understand what the law says.

Now the thing is, lots of countries have 'double taxation' where the profits a corporation makes are taxes, *and* the dividends to shareholders are taxed. In this case they're saying investment in the company would be taxed as well, which could be triple taxation, or it could just be a stupid way of trying to collect existing owed taxes.

And yes, of course, if you set up your own business and invest in it you could be trying to dodge tax (Sri's game testing and cat sitting services, who's sole customer is Sri, who is, incidentally, the sole investor). I don't dispute the possibility of that being widespread and damaging to the economy and tax base.

Thank you, India.

[pubwvj]

The rest of the business world thanks the Indian government for destroying India's competitive edge. Now it will be all the easier to compete against India. Rah-rah, India!

Why is it that government's just don't get it. They need business to provide jobs so they can have something to tax. Dummies.

Understanding may not be the problem.

[__aaltlg1547]

Major corporations would be FOR this sort of legislation. It prevents competitors from getting into your market.

What an angel investor is.

[JoshuaZ]

Neither the summary nor TFA said what this term meant. For those who don't know, essentially an angel investor is someone who invests their own money in a start-up or very young company in return for weak control of a part of the company.

Re:Equity

[alexander_686]

Equity = Assets - Liabilities

The investors trades cash for shares with the company - So your right there. On the other hand, for the company the new cash, an asset, is coming into the company, This will increase both the asset account and the equity account.

The accounting transactions would be
      Credit the cash account in Assets
      Debit the Paid In Capital account in Equity.

If the company was issuing new debt - and thus no new equity, the accounting transactions would be:
          Credit the cash account in Assets
            Debit the Long Term Debt Account in Liabilities.

Re:Coming to an anti-capitalist country near you

[mysidia]

Capital gains tax is applicale to the selling of shares.

Let me explain how that's different: Capital gains tax is (PROCEEDS OF SALE) MINUS (COST BASIS)

Currently you don't pay any taxes on a stock split and don't necessarily pay taxes on capital distributions either (your cost basis is decreased). What happens with a stock split is the number of outstanding shares are doubled in a 2:1 split, so you wind up with twice as many shares, each worth half their original share price.
In a normal 2:1 stock split, you don't get any cash, only additional shares of stock that are distributed to you, but all shares (including the ones you already hold) are now only worth half as much a share in the company, so your total share in the company remains the same after the split.

VAT.

Let me explain how VAT is different. VAT is a tax you pay on the purchase. Currently you don't pay an additional tax on the actual you money you borrow on the credit card. Currently debt you take out is not treated as income.

Also subject to capital gains tax if it's not your main home. Regardless of stamp duty.

Currently you only pay capital gains tax if you sold the home for more than your Adjusted cost basis, (Purchase Price) Plus (Property Improvement Costs) Minus (Depreciation)