Over 2000 Startups Under The Scanner: Ministry Of Corporate Affairs Issues Notices Over High Premium Of Shares

Over two thousand startups have been issued notices by the Union Corporate Affairs Ministry (MCA) regarding their funding patterns, as reported by Economic Times (ET). The MCA is headed by the Finance Minister, Arun Jaitley.

These startups, whose valuations had fallen after their first round of funding, were served notices by the Ministry over the past 45 days. MCA had asked them if they had sought permissions from the government to do so under any scheme or had availed any exemptions regarding the same.

“Shares (of the startup) have been issued at a high premium. Please justify the same and also explain whether the company is having any exemption (of) being startup etc.,” a notice sent to a startup allegedly said.

This development comes after two years since the Income Tax (IT) department first asked unlisted startups to pay upto 33 per cent tax if their valuations went down after the first round. Successful startups usually go through various rounds of funding before being listed on the stock markets.

In January 2018, various Indian startups came together to file a petition asking the government to rollback the ‘angel’ tax. It was introduced in 2012 by the then Finance Minister, Pranab Mukherjee, according to which 30.9 per cent tax had to be paid by small startups for raising funding from Indian residents (angel investors).