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Messages - Sudhakar
#AngelTax and Why it Matters to Startups in IndiaIn recent days there has been a big furore in India around the Angel Tax. But, what is this Angel Tax?
Angel tax is the tax levied on funds raised by Indian start-ups through issue of shares to Indian residents. The Income Tax department has held that when these investments are made at a premium to the fair market value (FMV), the amount raised in excess to the FMV is taxable. The amount is reckoned as "income from other sources" and taxed under Section 56 (2) (viib) of the Income Tax Act, 1961. The rate of tax is 30.9 per cent. Which means that a startup could be asked to pay 30.9% of the amount of investment it has raised to grow the business!
The problem of Fair Market Value
In the context of start-ups, since the idea is at a conceptualisation or development stage, it is difficult to objectively determine the fair market value (FMV) of the shares of the start-up.
Start-ups have little/no revenues or profits and their valuation is based on the potential of the idea, the background and competence of the founding team, etc. and is usually a matter of negotiation between the founders and the angel investors.
The start-ups cannot be evaluated only on their assets, since the assets (both tangible and intangible) are built mostly by successfully executing the business idea. Nor is it easy to arrive at a 'fair value', based on discounted cash flows, since the business is subject to various market forces, including market acceptance and competition from current and emerging competitors and newer technologies over time.
The startup valuations are often subjective - a valuation, which seems high to some, may be fair to others. Also, the valuations agreed between the parties may, in hindsight, turn out to be advantageous for one party or the other, but that is inherent in the nature of risk taking by entrepreneurs and early investors. It is impossible to create a homogenous logic for such investments, be it DCF or a valuation by merchant bankers, etc.
It is also not necessary that each start-up meets the initial projections and hence valuations can come down. That, however, does not invalidate the original projections. However, in multiple instances the IT department, with the benefit of hindsight, has invalidated the original valuations, reduced 'fair market value' at the time of assessment and increased the premium amount on which the tax is to be levied.
Given the traditional ways of the IT Department in determining FMV (ignoring intangibles like goodwill, intellectual property, market potential, disruptive ideation etc.), in majority of the cases, the FMV so calculated will be lower than the value at which the capital investment is made. This results into the tax being levied under section 56 (2) (viib).
Why was Angel Tax introduced?
Angel tax was introduced as an anti-abuse provision in the 2012 Budget. It was intended to curb attempts to launder undisclosed income by resident Indians through startup investments. It was felt that given the closed nature of these deals, there was subjectivity regarding valuations and scope for acquiring shares at a premium for very little equity and using the mechanism to convert black money to white.
How is Angel Tax impacting start-ups?
Angel tax is problematic for a few reasons:
The heavy-handed approach of tax authorities in determining FMV by ignoring the dynamics of the start-up ecosystem.
Higher valuations, when raising funds, are beneficial since it means that start-ups have more funds for growth. However, if the inflows to business are reduced by heavy taxation, then business is a victim of its own success in commanding higher valuations.
Higher valuations are good for the startup's employees, since it means giving up less equity. This helps conserve equity for subsequent rounds and also ensures that enough equity is available with the founding team to keep them motivated and also to issue ESOPs to key talent. However, the benefits of higher valuation are negated when share capital or share premium is taxed.
As Section 56 (2) applies only to domestic investors, it discriminates against them as compared to foreign investors, who are not subject to this clause. This adversely impacts the creation of a robust Indian start-up ecosystem, where successful domestic entrepreneurs can fund and support upcoming start-ups. This is how Silicon Valley in the US was built - one wave of successful businesses funding and mentoring the next wave of ideas and companies.
The recent wave of coercive action
In the past few weeks, hundreds of start-ups have received notices from IT authorities asking them to pay taxes on the angel funding raised by them. Some of them have also been slapped with penalties on the tax not paid. In some cases the tax-cum-penalty amount is nearly 50% of the capital raised.
Many start-ups feel that they would rather shut down than face the simultaneous harassment of explaining valuations and also struggling to keep their businesses afloat, knowing that payment of such taxes will definitely kill the business by starving it of funds.
Besides IT Department, MCA has also sent notices to over 2,000 startups that have raised investment in the last five years. It has given a 45 days deadline ending shortly in the January 2019.
Exemption to Sec 56 (2): A Partial Solution
The government in an attempt to grant exemption from the provisions of Sec 56(2) to genuine investors has laid down criteria to recognise start-ups. The qualifying criteria for angel tax exemption are however very tedious and it is beyond the capacity of most start- ups to devote so much time and energy to secure such exemptions.
While applying for exemption from angel tax provisions, the startups must meet the below criteria:
The aggregate amount of paid-up share capital and share premium of the start-up after the proposed issue of shares should not exceed INR 10 Cr.
The revenue of the start-up shall be less than Rs 25 Cr.
The angel investor or proposed investor should have a minimum net worth of Rs 2 Cr and an average annual income of Rs 25 Lakhs or more in the preceding 3 years as per IT Returns.
The startup shall obtained a report from a merchant banker specifying the fair market value of shares in accordance with Rule 11UA of the Income-tax Rules, 1962.
An Inter-Ministerial Board shall then review such cases before deciding to grant exemption.
Even if certain startups fulfil the criteria, it has been difficult for startups to get approval from the Inter Ministerial Board (IMB) due discretionary provisions and delays in cases being listed before the IMB.
What can be potential solutions?
Angel tax provisions should be abolished. The mis-deeds of a handful of black sheep has tarred all investors with the same brush and is leading to a sharp drop in funding options for start-ups. This runs contrary to government's various attempts to promote start-ups, which are an important source of growth and employment creation.
In case the issue of angel tax needs further study, the following solutions may be implemented as an immediate measure:
Issue 1: Fair Market Value (Section 56(2):
Start-ups, which are asset light in the beginning, raise capital on the basis of forward looking projections. These projections are being questioned by the IT Department, which disregards the entire basis of valuation in practice and looks at applying only the net book value method. This will render the valuation of almost all the startups in the country as negative.
Proposed Solution: As a default provision, Assessing Officers (AOs) to accept the valuation principles / calculations submitted by start-ups. Exceptions should be made and queries flagged only if there is concern with regard to the bona fide of the angel investors.
Issue 2: Disallowance of Investment (Section 68):
A lot of startups have been asked to produce evidence of creditworthiness of investors- including audited statements, Bank statements and ITR details. Ideally complying with legal PAN tagged transaction is what startups can do and beyond that onus should be on the IT department and not start-ups. Upon failure to produce these documents, the IT department has the authority to convert this entire investment as taxable income.
Proposed Solution: Asking start-ups to furnish the ITR's of investors will only kill the investor interest. Instead AOs should insist on PAN number and AO's to do a separate investigation for source of fund if required directly.
Issue 3: IMB certification for Angel investment
DIPP's notification of April 2018 expects startups to seek an IMB certification after taking a mercantile banker valuation and investor ITR's before raising angel investment. This long process is slowing down the angel activity.
Proposed Solution: IMB prior to raising fund is impractical; instead the US model of "accredited investors" may be adopted to tackle this.
Angel investors in countries such as US are offered tax benefits when they fund small companies. They are also ways for angel investors to save tax by re-investing gains from one investment into another entrepreneurial venture.
But in India, we are stifling the start-up ecosystem by making it difficult for enterprises to receive funding in the initial years. Investors, who are willing to risk their capital, are also treated with suspicion. The angel investor ecosystem being vibrant is critical to the development of the startup economy. Else we will have a small number of companies that are lucky to get an angel investment who will get a disproportionate share of venture capital investments. But large-scale technological innovations will happen when the startup ecosystem is broad based and for that we need an angel investor ecosystem that is equally broad based.
Ideally, angel tax provisions should be abolished. At the very least, the exemption from the provisions should be automatic and system driven than complex and discretionary. There is no rationale for the IT department asking start-ups to pay tax on the amount they raise 2-3 years back irrespective of whether they made profits or not.
Taxing profit on the capital invested by investors, or the profits of the company is fair but taxing the capital raised is doesn't seem logical. Whether it is share capital or share premium that is raised by the company, it is still capital received. It should not be treated as 'revenue income.
Practically speaking, valuation is a free market agreement and Income Tax should only be levied on realised gain and not notional gain. Only when an investment works out and yields a profit, should the parties making a profit be taxed on the gains.
However, the chilling effect the #AngelTax can have on the investment sentiment is not adequately appreciated. Capital and talent are very mobile - they can easily re-locate to more hospitable and rational destinations like Singapore. That would run contrary to all significant and commendable attempts of the Government of India in promoting Ease of Doing Business, Start-up India and Digital India.Source : https://www.linkedin.com/pulse/angeltax-why-matters-startups-india-kunal-bahl/
This 7-year old made 157 Crores of money by creating YouTube videos from 2015 till 2018$22 million - USD to INR = 2,20,00,000 United States Dollar equals = 1,57,02,50,000.00 Indian RupeeRyan, a 7-year old YouTuber from Atlanta has become the highest earning YouTube star in 2018. This incredible YouTube content creator has made $22 million by publishing YouTube videos of him playing with toys.
Ryan ToysReview, is the YouTube channel hosted by this young YouTube influencer and has nearly 17 million subscribers and approximately 26 billion views on his videos. According to Forbes magazine., the channel reported highest earnings last year as well. There are also merchandise with Ryan?s face on it at many retailers including popular stores like Target, Kohl?s, and Walmart.
Well believe it or not, Ryan?s YouTube channel is all about Toys reviews. He features in videos of unboxing a toy and playing with it. He plays with everything from dinosaurs and Legos to Disney action figures. It is the sheer brilliance of Ryan?s acting that has helped the YouTube channel become popular.
Ryan and his parents started the channel back in 2015 when he was just 4 years old. There is a new video published on the channel almost every day. According to a report by Verge, Ryan?s mother quit her job as a high-school chemistry teacher to focus on his YouTube channel. The channel started gaining popularity within four months of its launch.
According to Ryan?s mother, her son was watching a lot of toy review channels, which gave her an idea to start a channel of his own on YouTube. Some of his favorite channels include EvanTubeHD, and Hulyan Maya.
Most of the YouTubers make large portion of their revenue from sponsored posts. According to Forbes, which compiled the list, the top 10 YouTube stars of 2018 together amassed earnings (June 2017 ? June 2018 and earnings are pretax) of $180.5 million
Microsoft Soundscape: A Map Delivered in 3D Sound - Feb 2018
Microsoft Research Published on Feb 28, 2018
?Soundscape fills in a lot of the mental map as you move, making it effortless and seamless to know what?s around you,? highlights Erin Lauridsen of Lighthouse for the Blind in San Francisco. Microsoft Soundscape is a research project that explores the use of 3D audio cues to help build richer awareness of your surroundings.
Learn more about Soundscape at https://aka.ms/Soundscape
Read the related story: https://www.microsoft.com/en-us/research/product/soundscape/
Category Science & Technology
Premam TAMIL Song Malare Ninne by Shreeraj & Vibhas
Google.org announces a grant of $3 million or rs 20 crore for two Indian NGOs during May 2018Just to start with USD50 million is Rs 339 Crore rupees Indian money .Update on Google.org pledge Rs 339 Crore to help people land jobs and equal access in education. So to improve the technology to students and teachers, google's philanthropic wing - google.org has commited of USD 50 million and out of which USD 11.4 million is already paid for various NGO's in India and which benefited 8 lakh students and teaches in 2017. A report says.
Two Indian NGOs have received a grant of 3 million USD the philanthropic wing of Google - Google.org. Out of Google's global commitment of USD 50 million, it has already given USD 11.4 million to various NGOs in India. Through Google.org, the company hopes to help non-profit organizations scale up their initiatives and provide training to teachers through tech-based learning solutions. In 2017, Google had donated USD 8.4 million to four leading NGOs - Million Sparks Foundation, Learning Equality, Pratham Education Foundation and Pratham Books - StoryWeaver. According to the estimates, around 8 lakh students and teachers benefited this funding as they received access to innovative educational tools and programmes across the country.
Nick Cain, Education Lead at Google.org said: "We strongly believe that technology can play a powerful part in solving the learning gap in India, and we are expanding our investments in India to ensure thatteachers and students are able to benefit it." Cain elaborated that teachers are not properly equipped with the right resources and there is a lack of quality study material as well. A government report indicated that there are around 11 lakh teachers lacking proper training and are teaching in schools while another report the World Bank emphasized on the fact of 1.3lakh single teacher schools existing in India.
Out of the total fund provided, 1 million USD is specifically meant for The Teacher App, whereas 2 million USD is provided to the Central Square Foundation (CSF). The Teacher App offers an innovative approach of training in important subjects as maths, pedagogy, science, language etc. Apart these funds, the YouTube learning team aims at providing the right technical assistance to the Central Square foundation.
This assistance will indeed support several content creators in producing approximately 200 hours of content in major streams such as technology, science, maths and engineering inthe languages. Additionally, in the next two years, these funds will be used to reach out to 5 lakh teachers. (Source: www.financialexpress.com)
Reference Link : https://www.techgig.com/tech-news/Google-org-announces-a-grant-of-3-million-for-two-Indian-NGOs-178726?
Reference Link : https://www.usatoday.com/story/tech/2017/07/26/exclusive-google-pledges-50-million-help-people-land-jobs/511125001/
Reference Link : https://techcrunch.com/2017/03/21/google-org-grants-50-million-to-nonprofits-striving-for-equal-access-in-education/
Google I/O'18: Amphitheatre - live stream from youtube
Started streaming 1 hour ago
This livestream covers all of the Google I/O 2018 day 1 sessions that take place on the Amphitheatre stage. Stay tuned for technical sessions and deep dives into Google's latest developer products and platforms.
Event schedule (all times are PDT) → https://goo.gl/ZQce6g
12:45 PM - Developer Keynote
2 PM - What's new in Android
3 PM - An introduction to developing Actions for the Google Assistant
4 PM - What's new in Android development tools
5 PM - The future of the Android app model and distribution on Google Play - Part I
6 PM - The future of the Android app model and distribution on Google Play - Part II
Google I/O 2018 All Sessions playlist → https://goo.gl/q1Tr8x
Subscribe to the Google Developers channel → http://goo.gl/mQyv5L
Music by Terra Monk → https://goo.gl/wPgbHP
Category Science & Technology
License Standard YouTube License
Google I/O 2018 : Live Google event
https://events.google.com/io/Google I/O'18: Google Keynote - 125,421 viewsGoogle Developers - Streamed live - for 3 hours on 10:00 AM - 08 May 2018
Learn about the latest product and platform innovations at Google in a Keynote led by Sundar Pichai.
Google I/O 2018 All Sessions Playlist → https://goo.gl/q1Tr8x
Subscribe to the Google Developers channel → http://goo.gl/mQyv5L
Category Science & Technology
License Standard YouTube License
Here's What The CEO Of Dell Has To Say About India's TechiesComplimenting India on its digital drive, Michael Dell, Chairman and CEO of Dell Technologies, said that he gets inspired by what the country is doing to transform its society and economy.
"IndiaStack, for example, is a world-leading concept and as a techie, I get very inspired by what India is doing. It is an amazing government-led effort," Dell said in response to a question by IANS, while addressing the media at the Dell Technologies World 2018, one of IT industry's premier events, here.
IndiaStack is a set of APIs that allows governments, businesses, startups and developers to utilise a unique digital Infrastructure to solve India's problems towards presence-less, paperless and cashless service delivery.
"Governments should understand that the Internet, broadband and fiber are really important in next generation of the society," he said.
Saying that 5G would expedite the digital transformation globally, he said that "governments have to figure out 5G to amplify their productivity or else they will fall behind other countries." "5G is a big enabler of the digital transformation process," Dell said, adding that companies in the future would have to make better use of their data to stay ahead of the competition.
"Success is going forward in a very different way from the past. It starts with company's data that make product and services better, which in turn generates more data. Companies are now using Artificial Intelligence (AI) and Machine Learning (ML) to use this data in the maximum effective way. 5G is just around the corner that would expedite this process better," he added.
He said that the data is the rocket fuel for AI and this technology should be used in an effective way.
Stressing that technology strategy has now become a business strategy, Dell said that consumers globally are using the latest technology offered by the company to amplify their productivity. "We talk often about technology solving our greatest challenges and we are making progress more quickly than ever before. Customers continue to embrace Dell Technologies as their essential infrastructure company in increasing numbers," Dell said.
At the event that started on Monday and which is set to attract over 14,000 visitors, Dell Technologies also felicitated its eight industry leaders-customers for their excellence across all stages of the digital transformation journey. State Bank of India was one of the "Trailblazer Award" winners, along with Volvo Cars/Zenuity, Travelers and Unidad de Conocimiento. Trailblazers are the customers who are one of the forward-thinking companies making progress in the areas of digital, IT, workforce and security transformation.
"Not only are these leaders realising their digital futures through technology innovation, but they are creating an exceptional experience for their employees, customers and communities," said Karen Quintos, Chief Customer Officer at Dell. Besides implementing a converged private Cloud-based data storage, State Bank of India, the largest public-sector bank in the country, also recently opened a major innovation center to explore the integration of emerging technology, such as nlockchain, AI and ML.
The "Innovator Award" winners included Ford Motor Company, Bank Leumi, AeroFarms and Johnson & Johnson.
Source : https://www.techgig.com/tech-news/Here-s-What-The-CEO-Of-Dell-Has-To-Say-About-India-s-Techies-177987