Foreign investors are being snagged by India’s tax net

StartupSin IndiaVCVCVC , as elsewhere, are in trouble. Venture-capital () investments in January were down by 80%, year on year, according to Inc42, an online publication. Many of the reasons are familiar, too: money is no longer free; local banks pay more on deposits; once-hot business models like food delivery or online learning have not lived up to expectations; and crashing valuations are undermining the credibility of the market. Now Indian firms face another, idiosyncratic hurdle.A new tax provision buried in the latest annual budget, which is being debated in parliament, broadens a rule from 2013 that treats most investments from unregistered backers, such as rich individuals, family offices and other such “angel” investors, as the recipient’s income if the accompanying valuation is “in excess of fair value”. The tax currently applies to money from Indian sources. The new version would extend to largesse from any foreign investor, including firms and pension funds, not registered with India’s securities regulator.