Can the ‘source of fund’ rule in Budget hinder non-VC investments in start-ups?

Darshan Bora, partner, Economic Laws Practice (ELP) has been quoted in Business Today in their article titled ‘Can the ‘source of fund’ rule in Budget hinder non-VC investments in start-ups?’
Darshan says, “Once the proposed amendment is effective, in addition to the recipient of a loan or borrowing, even the lender may be called upon to provide justification about the nature and source of funds loaned by him. If the lender is unable to provide a satisfactory explanation, the amounts can be taxed as income in the hands of the recipient of the loan. It will increase the compliance burden on start-ups who receive loans or borrowings. This provision does not apply to amounts received from a venture capital fund or venture capital company”

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