What angel investors expect from Budget 2015

By Amrita Premrajan, TimesJobs.com Bureau

India's angel investor community wants the Narendra Modi Government to remove regulatory roadblocks and define the role of investors in its startup fund in the 2015 Union Budget to be unveiled on February 28.

Here are three pre-budget expectations from the community, according to Shankar V, a member of Chennai Angels and one of the directors of Computer Age Management Services.

1) Identify genuine angel investors: "India's angel networks have been suggesting to the government to create a framework to identify 'genuine' angel investors. Acknowledging this and implementing this is at the top of our budget wish-list. Such a list can be leveraged by the government to incentivise and offer exemption to genuine angel investors and boost emerging businesses in India."

2) Define role of investors in the Rs 10,000-crore startup fund: "The government announced a Rs 10,000-crore fund for startups in the previous budget. However, the mechanics of operations of the fund, including the term, composition between debt and equity and the manner in which proposals will be solicited and vetted, have not been defined."

The roles of existing players such as incubators, accelerators, angel associations and VC funding bodies have also not been defined."

3) Remove income-tax anomalies: Section 56 (2) VII of the Income Tax Act states that if shares are issued by startups to angels above the book value (<=Rs 10), the excess is treated as income of the startup and taxed at 33 per cent. Since most startups have all the value captured in the Intellectual Property (IP) and a book value of zero, they will have to pay 33 per cent of every angel round as tax.

In simple terms, if a startup wants to get an investment of Rs 2 lakh from an angel investor in return of shares, the company will have to raise around Rs 3 lakh since about Rs 99,000 will have to be given away as tax."

Angel investment in India

a) Angel investors use their own money to provide seed funding to emerging startups in return of ownership equity or convertible debt

b) Rajan Anandan, MD, Microsoft India, and Ravi Gururaj, chairman, Nasscom, are some of the big names in the IT industry who have turned angel investors, foreseeing the potential of Indian startups

c) Under NASSCOM's 10,000 Startups initiative, the industry body is offering tech startups with a promising prototype a chance to get funding from leading angel investors in the range of Rs 25 lakh to Rs 2 crore