IT Department Sends Notices to Startups for Funding Information
The Income Tax Department has sent notices to several small and unicorn startups that have received funding of more than Rs 100 crore between FY 2019 and 2021. The department has asked these companies to provide information about the nature and source of their investment. This move has caused concern among startup companies that are already struggling with a lack of funding. Here are the details:
Notice Sent Under Section 68 of the Income Tax Act
The notices have been sent under section 68 of the Income Tax Act, which is used to get information about funding. According to a report in Business Standard, all startups that have received funding of more than Rs 100 crore have received notices from the IT Department. However, the total number of startup companies that have received the notice has not been disclosed yet.
Information Sought by the IT Department
Apart from the nature and source of investment, the IT Department has sought information about local holdings of foreign investors, valuation, and use of money raised from investors in this notice. The department is trying to prevent round tripping of funds and has applied the provisions of Angle Tax to NRIs as well. However, sovereign wealth funds, pension funds, and portfolio investors registered with SEBI are exempted from angel tax.
Impact on Startups
This notice has caused concern among startup companies that are already struggling with a lack of funding. Many startups are worried that this move will create more hurdles in the funding process and make it difficult for them to attract investors. Additionally, the process of providing the information sought by the IT Department can be time-consuming and expensive for startups.
Conclusion
The IT Department has sent notices to startups that have received funding of more than Rs 100 crore to prevent round tripping of funds and gather information about the nature and source of investment. However, this move has caused concern among startup companies that are already struggling with a lack of funding. The process of providing the information sought by the IT Department can be time-consuming and expensive for startups.
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