The Income Tax (IT) department has sent notices to several startups for sharing the details of eventual investors in angel funds who have bankrolled them. Alleged suspicions over round-tripping of Indian investments could block free flow of capital for startups and stifle entrepreneurship. Fund Manager of Alternative Investment Fund (aif) such as Private Equity (PE) and Venture Capital Fund (VCF) have the expertise to be KYC compliant Criteria, But for angel funds, the responsibility of due diligence of the investor lies with the startups. Asking startups to determine the ultimate source of funds will increase their cost of raising capital. Instead, the IT department should accept a self-declaration made by the capital raisers.

In 2019, Indian government After several genuine startups received tax notices, angel tax rules were relaxed to curb money laundering. Companies classified as startups by the Department for Promotion of Industry and Internal Trade (DPIIT) were exempt from the tax – levied on excess share capital raised by unlisted firms over and above the fair market value of their shares. The Government of India relied on e-verification to establish the identity of the investor and the source of his funds.

Following audit trails makes it easy to track down someone who invests in unlisted companies to convert black money into white. Information received from other jurisdictions under automatic exchange of information also helps to establish audit trails in a globalized economy. Listing the actual beneficial owner (read: having a unique identifier) ​​of any trust or company, such as in the UK, will help in locating the ultimate beneficiary, even if it extends beyond the web of companies and trusts. Global cooperation on this front should be intensified.