New Delhi, Mar 29 (KNN) Several Indian fintech startups have recently been slapped with income tax notices related to their venture capital fundraising rounds, sources report.

The tax authorities have served notices under Section 68 of the Income Tax Act to these new economy ventures, clubbing the VC investments received by the startups with their income.

Tax and penalties have then been levied on the combined amount.

One startup registered with the Department for Promotion of Industry and Internal Trade (DPIIT) has incredibly been asked to pay Rs 37 crore in taxes and penalties on just Rs 40 crore raised from VC investors, reported ET.

Section 68 of the Income Tax Act allows the authorities to tax capital raised by a company as income if it fails to satisfactorily explain the nature and source of the funds.

While such tax demands can be closed if sufficient documentation is provided, the surprise notices raise concerns over the scrutiny faced by recognised startups drawing institutional VC capital.

Typically, DPIIT-registered startups do not face this level of questioning over their funding sources from legitimate VC investors.

The notices signal potential challenges for the Indian startup ecosystem in raising future rounds.

The sources indicate that multiple fintech startups operating in areas like lending, payments and wealth management have received these Section 68 notices in recent weeks as they looked to raise VC money.

As the Indian startup economy booms, the tax issues could weigh on startup operations, venture capitalist confidence, and the inflow of investment funding.

(KNN Bureau)