India: Funding Startups Could be Classified as Income

This is insane!<p>Indian Government will tax startups 32.5% on any angel funding received. But, they give tax holidays to larger companies under SEZ scheme.<p>It can be cheaper and more viable for Indian startups to incorporate in Singapore or US.

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 &#60;ignorant+foolish&#62; government!

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

If more countries try anything like this it might make a real argument for <a href="http://www.blueseed.co/" rel="nofollow">http://www.blueseed.co/</a>

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.<p>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.<p>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.<p>Retailers protested against FDI and forced Government to reconsider it.

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

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.