A requiem for startups in India
With the amendments brought by Budget 2012, An investment in any private company could be classified as income, unless the beneficiary can justify the investment and value of its assets to the Assessing Officer. Such income is taxable.
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.
Excerpt from Finance Bill 2012 (Page 8)
I don’t have to tell you about challenges you’ve to go though, to get an interested Angel invest in your company’s idea.
Now with the new amendment, lets spend even more time on convincing the “Tax Officer” that your idea is a legible asset of the company.
Further, it is also proposed to provide the company an opportunity to substantiate its claim regarding the fair market value. Accordingly, it is proposed that the fair market value of the shares shall be the higher of the value—
(i) as may be determined in accordance with the method as may be prescribed; or(ii) as may be substantiated by the company to the satisfaction of the Assessing Officer, based on the value of its assets, including intangible assets, being goodwill, know-how, patents, copyrights, trademarks, licences, franchises or any other business or commercial rights of similar nature.
And all these are applicable for the investments from April 1, 2013.
So either raise money before that, or learn magic!
Sources : Finance Bill 2012
