Angel Tax & E- Way Bill System

Angle Tax

Startup – New idea into New business [Innovation]
The business man start the dummy start up like xyz company. Invest 1000 Cr in the company and exempted from tax paying. Angle tax is Tax the invested amount excess than fair market value.
Ex: Fair market value (Calculated by IRS Officers) of Business is 500 Cr needed, but 800 Cr is invested for tax exemption of 300 Cr. Angel tax put tax on excess money put in the business.

• Technically, angel tax is an income tax payable on capital raised by unlisted companies from investors (mostly angel investors) via issue of shares if the sold share price is excess of the fair market value of the shares.
• The excess of share price over the fair market price and the amount raised is treated as income and taxed accordingly.
• The tax was applicable on angel investment that are supposed to make investment in start-ups, hence it is known as angel tax. Start-ups who received such capital have to pay the tax.

Angel tax was introduced in the 2012 budget by the then finance minister Pranab Mukherjee to arrest laundering of funds. Misuse of the incentives given to the start-ups was the main factor that tempted the government to impose tax on fresh investments over fair price of shares.

• The controversy is mainly due to the lack of suitability of valuation principles in conventional companies in the case of startups.
• Here, in the case of startups, the revenue may be low or nil at the beginning phase, but their valuations increase because of future growth potential.
• Hence, investors would like to pay higher price for shares by considering the future potential.
• The tax department can’t accommodate this premium paid by investors and wants to categories the higher price paid by investors as income that would be taxable at 30%.
• The angel tax controversy shows the inability of the conventional tax administrative system to accommodate new generation digital enterprises and practices while at the same time tackling the problem of illegal transactions.

Exemption for angel tax

After carefully considering the concerns of the start-up sector, the government has come out with several steps to ensure the flow of investment to the start-ups by introducing changes in the section 56 of the Income Tax Act that contains the angel tax provision.

Exemption for unlisted entities (Not listed in share market)

• Investments where the aggregate paid-up share capital (and share premium of the start-up after share issue/proposed issue) shall not exceed Rs 25 crores (exemption increased in February 2019).
• This means that if the paid-up capital of the start-up entity is Rs 25 crores or less, the angel tax is not applicable. This norm is in the case of unlisted entities (most of the start-ups that seeks funding are unlisted entities or the ones that are not listed in the stock exchanges).

Exemption for listed entities (listed in share market)

• If investment is made in listed companies whose net-worth is upto Rs 100 cores or turnover is Rs 250 crores, there is no tax.
• Exemption from angel tax will not be available if the procured money is used to buy assets like land, building, vehicles, aircraft and other modes of transports, jewellery etc.
• Similarly, it should not be used to give loans and advances or to buy shares and securities.
• Earlier in 2018, the government put new regulations to avoid confusion and instructed that the angel investor’s investment should be valued and certified by a merchant banker, indicating the fair market value of the shares.
• Also, the startup drawing the investment must be approved by an inter-ministerial panel.
• Similarly, the startup should be an eligible entity under the startup policy in terms of capital, turnover, year of existence etc.
• At present, the start-up funding exemption has been given to angel funds that are regulated as Category I alternative investment funds.
• An eligible start-up would be one that is registered with the government, has been incorporated for less than 10 years, and has a turnover that has not exceeded ₹100 crores over that period.
• Also, the Finance Minister announced that a mechanism of e-verification (Under KYC norms) will be put in place to resolve the issue of establishing the identity of the investor and source of his funds. With this, funds raised by startups will not require any kind of scrutiny from the Income Tax Department. 

E- Way Bill System

What is an E-way bill?

• It is a document required to be carried by a person in charge of the conveyance carrying any consignment of goods of value exceeding fifty thousand rupees (Distance beyond 10km) as mandated by the Government in terms of Section 68 of the Goods and Services Tax Act.
• It is generated from the GST Common Portal for e-Way bill system by the registered persons or transporters who cause movement of goods of consignment before commencement of such movement.

E-way bills are required:

• To comply with Section 68 of the GST Act, and;
• Rule 138 of CGST Rules, 2017.

Who can generate e-way bill?

• The consignor or consignee, as a registered person or a transporter of the goods can generate the e-way bill.
• The unregistered transporter can enroll on the common portal and generate the e-way bill for movement of goods for his clients.
• Any person can also enroll and generate the e-way bill for movement of goods for his/her own use.
• When an e-way bill is generated a unique e-way bill number (EBN) is allocated and is available to the supplier, recipient, and the transporter.
• An e-way bill is valid for 1 day for distance less Than 100 Kms and additional 1 day for every additional 100 Kms or part thereof The validity of E-way bill can be extended.
• If a consignment is found without an E-way bill, a penalty of ₹10,000 or tax sought to be evaded, whichever is greater, can be levied.
• In such a situation, goods, and the vehicle transporting them, can be detained or seized.
• An e-way bill can be regenerated by the transporter before expiry, but, if the e-way bill has expired, the system won’t allow regeneration linked to the same invoice.