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Two Indian startups say the government broke their faith by raiding their bank accounts

Business Insider |
Pranay Bhatia, International Liaison Partner
Partner - Tax & Regulatory Services

09 February 2019

Just when startups in India thought they could soon get a breather from angel tax, India’s  income tax department  has allegedly seized the bank accounts of two startups Travelkhana and Sheroes-owned Babygogo. 

Siddhartha Ahluwalia, co-founder of Sheroes and founder of Babygogo, told Business Insider he received a deduction SMS from the bank on Wednesday. 

“We had received no notification from the tax department or bank that this was going to happen,” claimed Ahluwalia, adding the company had been served a tax notice two months ago, to which it had responded by serving all the tax documents. 

“Yesterday, I received a SMS from the bank about the bank balance – ₹72 Lakh was deducted from the bank,” said Ahluwalia. “Thankfully, we had done the acquisition and all the stakeholders had got an exit and it was not an operational account which is why the balance went to negative ₹72 lakh and it was done by a demand draft.” 

However, things appear much more serious for Pushpinder Singh, founder of TravelKhana. Singh has gone on Twitter to say “The bank manager said that 4 IT inspectors came and forced the bank manager to make DDs from all accounts. The bank manager said that this is commonplace these days.” 

Singh claims The Central Board of Direct Taxes seized ₹33 lakh while also freezing TravelKhana’s bank accounts. Singh, who has called it out on Twitter as “tax terrorism,” has also tweeted about how this was investment money for which shares had been issued and filings done with Registrar of Companies and RBI. 

To be sure, according to Pranay Bhatia, tax partner, BDO India, the tax recovery officials are well within their rights to collect and even freeze bank accounts if taxes due haven’t been paid. 

"From the perspective of the tax officer or the tax recovery officer has no option,” said Bhatia. “With the financial year end coming up, there is a lot of pressure on tax officials to collect outstanding taxes.” 

However, Bhatia warned that under “principles of natural justice,” the companies should have received a one-week notice to pay or give an explanation as to why they haven’t paid, failing which their accounts could be seized.. 

According to him, this is why an amendment to the angel tax law is necessary to make the life of a startup easier. 

On February 4, the Department for Promotion of Industry and Internal Trade had held a meeting with stakeholders to discuss the angel tax issue assuring that solutions would be provided soon. 

Following that meeting, Ramesh Abhishek, Secretary of DPIIT had said that no coercive action would be taken against startups that have received notices. Meanwhile, the CBDT chairman Sushil Chandra on Thursday morning spoke at a conference and assured that a solution to address the angel tax issue would soon be provided.