The National Association of Software and Services Companies (NASSCOM) has once again expressed concern over the falling fund flows into startups and urged to energize the Indian Startup ecosystem.

In November 2017, NASSCOM had shared its concern over the taxation issues ("Angel Tax") in the startup scene, which led to a steep 50 per cent fall in angel investments and a significant decline in series A funding.

To recall, in July'17 report of Tracxn, a startup analytics firm, the number of angel and seed investments made in the first half of 2017 (January to June) is down to 260, indicating a drastic drop from 419 in the first half of 2016. Whereas, Seed funding has seen a steep decline from 278 to 152.

Raising his concern over falling funding issue, NASSCOM President R Chandrashekhar said, “While angel investments are the critical first piece that gets a startup going, series A fund is the one where the angel investors really make their exits and make money. That’s what incentivises them to continue their investments.”

“We had pointed that out and felt that corrective measures are needed. However, we did not find that being addressed in the Budget,” he added.

The above development was first reported in

Earlier in May 2017, News Corp, had released Startup Deal Report Q1 CY2017. According to this report, investors prefers late stage funding. The report also stated that angel and seed investments fell both in volume and value terms with deal volumes reduced to half with 120 deals in Q1 CY2017 in comparison to 245 deals in the same period last year. Whereas Series A funding declined 65% in deal value on a Y-o-Y basis and Series B funding value improved 22% in the FY Q1 compared to the same period last year, despite deal numbers being lower by 16%.

Moreover, it can also be noted that the India's income tax department had demanded Rs 110 crore income tax from the e-commerce major Flipkart, which the company had challenged in the appellate tribunal and has reportedly lost the appeal.

The department’s claim was based on its findings that the company was showing losses by offering huge marketing discounts. According to them, the ecommerce major had a profit of Rs 408 crore in FY16 and thus a tax liability of Rs 110 crore, while the company had claimed a net loss of Rs 796 crore for the year.

Talking about demon of 'Angel Tax', startup ecosystem got disheartened when they found no mention of this in this year's Union Budget.

However, a day after Budget 2018 was presented, Department of Industrial Policy and Promotion (DIPP) announced that it is making an amendment where startups incorporated before 2016 that have got up to Rs 10 crore in angel funding won’t face the so-called angel tax. Later, it was reported that government is considering a proposal to exempt investments from recognized angel investor groups in startups from angel tax.

To recall, in this year’s union budget, it was also announced that time for claiming a tax holiday/exemption by eligible startups has been extended till 1-April 2021.

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