Angel Tax bites TravelKhana and Babygogo, IT dept forcefully withdraws Rs 1 crore from their bank accounts
Angel Tax has apparently started to bite Indian startups. Introduced in 2012, the tax has been allegedly used by the Income Tax department to withdraw over Rs 1 core without permission from the bank accounts of two startups called TravelKhana and Babygogo. The co-founders from both startups alleged on Twitter that money was withdrawn from their bank accounts by Central Board of Direct Taxes (CBDT) without giving them a chance to respond to the tax notices and queries that they had received.
The alleged actions of CBDT have not only raised the hackles of the Indian startup community, with many entrepreneurs and investors saying that it is better to incorporate startups in places like Singapore, but have also led many to raise questions about the government's claims about ease of doing business in India. TravelKhana and Babygogo have found support from many on Twitter including Google Managing Director Rajan Anandan, who is a well-known investor.
TravelKhana, a Noida-based start-up that aims to deliver food to passengers travelling by train, is suddenly facing a very possible end. The Income Tax department has reportedly emptied the bank account, withdrawing around Rs 33 lakhs on account of recovering Angel Tax, which is tax liability on investments raised by companies through Angel investors.
Yes - its true. This was my own reaction on Tuesday evening when it happened. The bank manager said that 4 IT inspectors came and forced the bank manager to make DDs from all accounts. The bank manager said that this is commonplace these days. https://t.co/Xp8OEJV2TYPushpinder Singh (@pushpinder) February 8, 2019
TravelKhana was ordered to pay an Angel Tax of Rs 2.2 crores on December 21, and on February 5, the Central Board of Direct Taxes (CBDT) froze the company's bank accounts and withdrew a sum of Rs 33 lakhs, leaving the company pretty much bankrupt. This has been confirmed by TravelKhana Pushpinder Singh, who tweeted that "4 IT inspectors came and forced the bank manager to make DDs from all accounts. The bank manager said that this is commonplace these days."
The CBDT has issued a statement in its defense, claiming that the money withdrawn from the bank accounts was not Angel Tax, but on account of unexplained cash credits. According to the statement made by CBDT spokesperson Surabhi Ahluwalia, TravelKhana did not confirm some of the depositors who made cash deposits, which is why a demand of around Rs 2.2 crores was raised by the department.
Hey startup founders and investors - you need to do Singapore/Delaware as a norm for Indian startups now.Sandeep Srinivasa (@sandeepssrin) February 8, 2019
The angel tax is now a lost cause - i don't see it getting fixed anytime until 2020 budget.
It's a spectacular time to be tapping into startup opportunities .. via SG/USA
According to a report by Bloomberg Quint, the CBDT has also acknowledged that it was "an error on their part and against natural justice" and unfroze the bank accounts, but that still leaves TravelKhana with no money to their name. Responding to a clarification issued by CBDT, Pushpinder posted the details of TravelKhana's interaction with tax officials, hinting that the tax department acted in haste and without giving due chance to the startup to respond to its queries.
This is how PM Modi's #StartUpIndia is being killed, startup by startup, by tax collectors. There is no end to #AngelTax extortion despite promises to the contrary by the PM and his Ministers. Wonder who is in charge. @PiyushGoyal @sureshpprabhu https://t.co/tVZ5WJNLbIKanchan Gupta (@KanchanGupta) February 8, 2019
TravelKhana is not the only start-up to get hit by Angel Tax. Babygogo CEO and co-founder Siddhartha Ahluwalia has also alleged that the IT department recovered a sum of Rs 72 lakhs from the company's bank accounts on account of Angel Tax. Babygogo (acquired by Sheroes) is a start-up that provides information to raise healthy babies.
The IT department deducted on 6th Feb 2019 Rs 72 Lacs Angel Tax from our company bank account.(AddoDoc Technologies Pvt Ltd) @babygogo_inSiddhartha Ahluwalia (@siddharthaa7) February 8, 2019
Thankfully we didn't have much balance in it and the balance in account is now -Rs 72Lacs.@TVMohandasPai @amitranjan @RajanAnandan pic.twitter.com/9ssLear2Zc
I am suspending all angel investing till the time #AngelTax is abolished.Rajesh Sawhney (@rajeshsawhney) February 8, 2019
I will offer my one hour everyday free to a startup that requires mentoring till March 31
The news of these two start-ups getting hit by Angel Tax is spreading like wildfire on social media, raising concerns over the devastating impact Angel Tax can have on start-ups and jobs in India. This also comes after the government promised that no coercive action will be taken on start-ups on Angel Tax. The action taken on TravelKhana and Babygogo is being seen as examples of "tax terrorism".