India: Funding Startups Could be Classified as Income | Hacker News Reader

India: Funding Startups Could be Classified as Income

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54 pointsNaushad18 comments

Petition to oppose this clause, India startup envt.

Details: http://capitalmind.in/2012/03/angel-investors-beware-funding-startups-could-be-classified-as-income/

This is insane!

Indian Government will tax startups 32.5% on any angel funding received. But, they give tax holidays to larger companies under SEZ scheme.

It can be cheaper and more viable for Indian startups to incorporate in Singapore or US.

Small companies can't lobby the way large companies do. This is why many democracies aren't pro-business as they would let you believe. They're pro-big business. An important distinction.

Probably a hold over from the technocratic centrally planed socialist economy of the 70's.

Taxing capital investment is an insane idea I expect the Lib Dem part of the ConDem coalition to be lobbying for it (in order to bribe the mums net members whos family income is > $120k with tax credits)

I am only slightly joking about the last part.

How does that help them at all? You'd think those "mums" would be have been potential investor for her son who studied in the US and returned to start a company?! (or another child starting up a corner store.)

Now the government is planning to tax the money she invests in him!

It's a reference to the way in the UK "hardworking families" as complaining about losing some tax benefit when they have 3x4 times the median income.

Of course this is paid for by taxing single people (and potentialy pensioners with large houses) and screwing sevely disabled peopels benefits - Including forcing Termanaly ill cancer patients to work for free for large supermatkets.

Internet connectivity in India is increasing almost exponentially and in next five years half of the country (500+ million) is going to be connected to internet. In such times, when ecosystem is changing, market is getting bigger and there is an unprecedented growth of user base, there will be, sooner rather than later, when many very good startups will be visible in the Indian market. However, a regulation like this is surely going to adversely affect the Indian startup environment. It's not going to benefit anyone, and now founders have to bother to pay tax when they could be writing code and working on their product. Who will explain the <ignorant+foolish> government!

So the US won't give them visas and India won't let them take investments. Where are Indian startups destined for now?

This is a really good opportunity for other countries to jump in and provide a "startup haven" of sorts for non-US citizens. Any of the other anglophone countries (Canada, Australia, UK) come to mind, as well as Northern European countries, where English is widely spoken as well. The only problem is the high cost of living there.

I don't have experience with the country, but I hear good things about singapore.

I applied to startup chile. But didn't get selected last time. I think such programs are really the middle ground. Not valley like lavish and high profile but also not India like absent startup genome.

If more countries try anything like this it might make a real argument for http://www.blueseed.co/

Solution: Take investment as a convertible note (loan)? Or sell shares at a fair market value, as contrasted so standard? This law seems like it just closes a loophole where a founder could take investment as personal income, which would rightly be a fee for service (salary), not actual investment; or closes a loophole where an investor makes a gift of cash to the company or for founders.

Consider YC: If you spend your $11K on your apartment rental, that's income. If you spend it on Heroku access, that's a business asset that adds value to the company.

Based on the unclear language in the petition, I don't think the only writer understands the law.

An iPetition will only fall on deaf ears of Indian Government. We should probably organize a real protest and take this to streets.

Retailers protested against FDI and forced Government to reconsider it.

Thanks - I wrote the original post (http://capitalmind.in/2012/03/angel-investors-beware-funding...) and have a few more that the recent Budget has introduced, at http://capitalmind.in/category/startups/startuptax/

By putting a damper on startup growth, any gains in revenue would be far more than offset by decreases in corporate and income taxes collected in the future. Such a terrible idea.

Can Indian businesses deduct expenses from income? That would solve the investment tax problem.

They can, but that hurts if you make any real revenue. If I invest $100 in a business, it spends the $100 but makes $60 as revenue, then the $40 is a loss. (And can be offset by profits in future years)

With this new clause, the calculation will be: income = $100 (investment) + $60 (revenue) = $160. Expenses = $100, profit = $60, and you'll pay tax.

It's like taking a loan from the bank and being taxed on the money as income. You still have to pay the whole thing back! (Effectively, any equity investment is a "liability" on the books; any investor will demand return on his whole investment, not just the portion that wasn't paid as tax)

If the investor is entitled to return, the investment amount is not in excess of the share value, and hence there is no income. If revenue is spent on growth expenses, there is no income.

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