TOI

BENGALURU: The angel tax worries of 2018 are pushing early-stage institutional investors to try and protect themselves from future I-T issues by introducing indemnity clauses in agreements with investee companies. Some investors have had conversations on this with companies they are close to investing in, multiple sources said.Indemnity clauses are often part of large funding rounds, or in mergers and acquisitions. But they are normally not part of small fund raises by early-stage startups, corporate lawyers said. An indemnity clause functions like an insurance protection and is worked out between the founder and investor, based on several conditions related to the startup’s operations and long-term plan.Many investing funds are registered outside India and they are worried about what would happen if tax authorities in the country question the valuations being made by foreign investors in homegrown startups.“Investors looking at such indemnity clauses before investing in startups is certainly not a common practice. Angel tax has been a cause of concern and now emergingtrends like this (indemnity clauses) could impact the pace of capital being raised by startups,” said Supratim Chakraborty, associate partner in law firm Khaitan & Co.A founder of an early-stage startup in the middle of a pre-series A fund raise said his new investors are bargaining hard to include an indemnity clause that would ensure they would have no liability in case of a loss incurred by the company over tax-related issues. The founder did not want to be named since the discussions are confidential and the fund-raise round is still a work-in-progress.Over the past few weeks,has been speaking to entrepreneurs who have raised their voice against what they believe is harassment by the tax-department. They say the tax notices are impacting their operations severely.