Experts argue that anti-abuse provisions should not hinder credible investors from receiving capital

The tax department has issued show-cause notices to various startups regarding the share premium money received in the past, stated by Punit Shah, Partner, Dhruva Advisors. The department has questioned the nature and source of investments, creditworthiness of investors, and valuation of shares issued.

In response to the notices, Shah mentioned that the investments were received from reputable domestic and international PE and VC funds with a significant track record of FDI investments in India. He highlighted that sections 68/56 should be used by the tax department in cases of suspected tax evasion, not in genuine cases of capital infusion from credible investors.

Shah also pointed out that the CBDT had previously instructed the tax department not to unnecessarily question share capital and premium infusion in startups. He expressed concerns that these actions could hinder the growth of the startup ecosystem and FDI inflows in the country, potentially affecting the overall economy negatively.