Income Tax Department Investigates Investment Discrepancies in Startup Investors’ Income Tax Returns
New Delhi, September 9: The Income Tax Department has announced that it will scrutinize the income tax returns (ITRs) filed by startup investors to investigate any discrepancies in the amount invested compared to the income declared in their personal ITRs. This move comes after several startups received tax notices in the last month, requesting information about their shareholders.
The Finance Act of 2012 stipulates that resident shareholders in startups must explain the source of their funds, in addition to proving the credibility of their investment, identity, and the legitimacy of the transaction. Section 68 of the Income Tax Act places the initial burden on the startup to prove these requirements.
Former BharatPe co-founder Ashneer Grover raised concerns about the recent tax notices on social media platform X. In response, the Income Tax Department explained that assessing officers could verify investors’ ITRs if the investors’ Permanent Account Numbers (PANs) were shared by the company. This would allow the officers to examine the genuineness of the transaction and verify if the investment amount aligns with the income shown in the investors’ ITRs.
Grover questioned why companies would have access to shareholders’ ITRs and why shareholders would willingly provide this information to private companies. He emphasized that investors are buying equity in startups rather than receiving loans from the startups.
This move by the Income Tax Department aims to ensure that the nature and sources of funds invested in startups by resident shareholders are properly explained. By conducting these investigations, the department hopes to address any discrepancies and promote transparency in startup investments.
In conclusion, the Income Tax Department’s initiative to scrutinize investment discrepancies in startup investors’ ITRs reflects their commitment to ensure proper compliance with tax regulations. This move will contribute to a more transparent and accountable startup ecosystem, instilling investor confidence and fostering a thriving startup culture in India.
