Startups currently in the market for angel funding may soon not have to worry about the taxman or relocating overseas. The government is working towards a solution to ring-fence angel investments that are currently taxable under the Income Tax Act. The move, if pushed through before or in the upcoming Union Budget, would help accelerate the growth of the domestic angel investor community and stem the drain of startups and critical intellectual property to overseas locations such as Singapore, North America and the UK.
The amendments under discussion, if taken on board, would directly benefit organised angel investor networks such as IAN, Mumbai Angels and Hyderabad Angels. IAN is currently the largest organised angel investor network with 350-odd members and more than 60 investments to date. In 2014, such networks along with high-profile individual angels such as Google India chief Rajan Anandan, iSprit founder Sharad Sharma and AppLabs founder Sashi Reddi, pumped $115 million into 285 startups, according to data from VCCEdge. This, however, is miniscule compared with the late-stage capital that venture capitalists invested, closing off 2014 with $2.1 billion.
“The population of genuine investors who are willing to put money on the table is not growing fast enough. This move will encourage more investors to participate in funding startups,” said Ravi Kiran, founder of Mumbai-based startup accelerator and angel network Venture Nursery, which has 30 angels in its network.