

India: Funding Startups Could be Classified as Income - Naushad
http://www.ipetitions.com/petition/no-startup-tax
Petition to oppose this clause, India startup envt.<p>Details: http://capitalmind.in/2012/03/angel-investors-beware-funding-startups-could-be-classified-as-income/
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RealGeek
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.

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mjwalshe
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.

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meric
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!

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mjwalshe
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.

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vivekprakash
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!

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

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w1ntermute
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.

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Achshar
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.

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pat2man
If more countries try anything like this it might make a real argument for
<http://www.blueseed.co/>

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Drbble
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.

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deepakshenoy
Thanks - I wrote the original post ([http://capitalmind.in/2012/03/angel-
investors-beware-funding...](http://capitalmind.in/2012/03/angel-investors-
beware-funding-startups-could-be-classified-as-income/)) and have a few more
that the recent Budget has introduced, at
<http://capitalmind.in/category/startups/startuptax/>

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RealGeek
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.

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heydenberk
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.

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

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deepakshenoy
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)

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Drbble
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.

