AN­GELS & DEMONS

Business Today - - THE BUZZ - -Apra­jita Sharma

AT A TIME when the tax­man is slap­ping 'an­gel tax' no­tices on start-ups on pre­mium val­u­a­tions, the gov­ern­ment's re­peated as­sur­ances promis­ing there will be no co­er­cive ac­tion, is com­fort­ing. Num­bers aren't only how early age in­vestors value star­tups; they bet on in­tan­gi­bles such as pas­sion, in­no­va­tion, and good­will. Ex­plain­ing their idea of high pre­mium to tax of­fi­cers is tough, since it is sub­jec­tive (and based on their own cal­cu­la­tions of fu­ture growth). Since the onus is on start- ups to jus­tify val­u­a­tions, and the law al­lows the tax­man dis­cre­tion in ar­riv­ing at the FMV, this will only de­ter in­no­va­tion and kill early age in­vest­ment. Ini­tial judg­ment doesn’t al­ways prove right; and val­u­a­tions may slide due to un­fore­seen busi­ness cir­cum­stances. In that sce­nario it's dra­co­nian to ret­ro­spec­tively tax start-ups on funds in­vested above the FMV. Let's hope the Tax de­part­ment with­draws these no­tices; and doesn't ac­cuse start-ups of tax eva­sion, all the while claim­ing it wants to curb money laun­der­ing.

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