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Angel Investor’s Expectations From Upcoming Budget : A Framework To Identify “Genuine” Angel Investments

Angel Investors
Angel Investors

[Editorial Notes: The upcoming budget holds a lot for the startup ecosystem – especially for angel investment. The Chennai Angels’ V Shankar shares some of the key expectations that angel investors look forward to.]
Exemption for Angel Investments from Section 56(2)(viib) of IT Act
Section 56(2)(viib) {introduced by Finance Act 2012 w.e.f 01-04-2013} provides that where a closely held company issues shares to a resident, for an amount received in excess of the fair market value (FMV) of the shares, then the said excess portion will be regarded as income of the Company and charged to tax under the head ‘Income from other sources’. This provision will inevitably cause problems for startups, particularly IP based ones, as their FMV will always be open to debate by the IT Department at the Angel and VC stage.
Angel Associations have long asked for exemption to genuine Angel Investments and have suggested a framework to identify “genuine” Angel Investments. This would be at the very top of our wish list.
2. Operationalising the 10,000 Crores Startup Fund allocated in Budget 2014
A startup Fund of 10,000 Crores was proposed in Budget 2014. However the mechanics of operations of the Fund, including the term, the composition between debt and equity, the manner in which proposals will be solicited and vetted etc. Also what would be the role for existing players such as Incubators, Accelerators, Angel Associations, VCFs etc. in this framework.
Angel Associations look forward to a transparent debate on the manner in which the above aspects would be finalized.
[About the author: Mr V Shankar is a member of The Chennai Angels.]

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