On Feb. 09, the central board of direct taxation said the recoveries from TravelKhana were not made on account of angel tax but due to unexplained cash credit. However, the company refuted this claim, saying, “There was no cash transaction as investment with us. Each transaction came through the bank transfers or equivalent.”

TravelKhana and Babygogo are now struggling to stay afloat. “Some of our employees are really low-paid. We just had an incident where one of our employees had a death in his family. These are people who are impacted, some 70 of them,” said Singh of TravelKhana.

These two incidents have left entrepreneurs and investors baffled. Some fear these firms’ plight will discourage entrepreneurship.

Thousands of posts on social media, using the hashtags #ShutdownIndia, #TaxTerrorism, and #ShiftOutIndia, called for moving startups out of India to friendlier destinations like Singapore.

The damage

For several decades, India has only been known as a destination for cheap tech labour. In the 1990s, the country saw a massive boom in its IT outsourcing industry and went on to become the “back office of the world.” However, in recent years, techies in the country have taken a cue from Silicon Valley and launched innovative businesses.

Today, India has over 7,000 startups. In 2018, Indian tech startups raised a total of $4.2 billion, more than twice the amount raised in the previous year.

This boom, though, has happened despite the government.

Young Indian firms have had to deal with laws that predate the advent of the internet. So some of the largest startups have been forced to register in more business-friendly countries like Singapore and the US, even though their entire teams operate from India, their primary revenue source.

Following its election in 2014, the Modi government’s fresh attention to startups kindled hopes that things could get easier. But that didn’t happen.

“Bureaucrats and politics still stick to their ancient beliefs of ‘guilty until proven innocent,'” said Pankaj Jain, an advisor to startups and funds and a former member of accelerator 500 Startups. “It’s unfortunate that Startup India and Make in India haven’t become a reality…it’s not something startups or investors can pin their hopes on.”

Over to the government.

The hope

On Feb. 04, Ramesh Abhishek, secretary at the department for promotion of industry and internal trade (DPIIT), told a clutch of entrepreneurs that his team would come up with solutions for the problem within a week. Among other things, the government is likely to raise the ceiling of exemption from paid-up share capital of up to Rs10 crore now to Rs25 crore.

“We are hopeful that DPIIT and CBDT will soon bring these changes along with extending the validity of a startup from seven years to 10 years,” Sachin Taparia, founder of  by social engagement platform LocalCircles and part of the team that met Abhishek last week, told Quartz.

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