Income tax on funding received by startups - Business & Economy - Entrepreneurship - TIK Share

Income tax on funding received by startups


Rahul Rai

2015-03-05

Investment by enterpreneurs in their startups is received by selling their shares above face value. In most of the cases, the funds are raised by issuing share capital and getting security premium.

However income tax is chargeable on money received above the value of share. In case of startups, value of share is always at face value. In this case the security premium becomes taxable.

My question how does startups tackle this situation to avoide income tax on investment received?

Government of India is pushing Make in India, skill development and entrepreunership. But what about the fact that the policies and laws are not at all in favor of entrepreneurs.

We have seen once company starts generating a little revenue they shift their base to foreign countries such as Singapore. This is one reason why companies do not prefer India as a place to do business.

With a simple logic if one receives funding of 5 crore, 1.5 goes to income tax department.