ClearTax nabs $1.3M to make filing taxes online in India less stressful

The Indian government has taken several steps to make filing taxes online easier, but the process can still be, well, taxing. ClearTax wants to make it easier. The startup, a Y Combinator alum, just raised angel funding of $1.3 million. Investors include Max Levchin (this is the PayPal co-founder’s first investment in India), Scott Banister, Neeraj Arora, Naval Ravikant, and Ruchi Sanghvi.

ClearTax launched in 2011 and currently has about one million users, a number it wants to grow to four million this year. The startup decided to raise its first round of funding to support its ambitious growth targets and build its senior engineering team, says founder Archit Gupta.

Thirty million tax returns were filed online in India back in 2014, when ClearTax was first profiled by TechCrunch after its stint in Y Combinator. That number has since increased to 43 million, thanks in large part to the massive number of millennials entering the workforce.

In addition to its consumer tax tools, ClearTax launched cloud-based tax reporting software for small companies in March. During nine months in private beta, the service gained about 5,000 business clients, a number ClearTax plans to grow to 100,000 by the end of this fiscal year. Enterprise sales are an important revenue source for ClearTax because businesses are required to report their taxes every quarter (individual taxpayers file once a year, like in the United States).

ClearTax not only competes with legacy desktop software, like CompuTax, but also the government’s own online tax filing system.

Gupta says ClearTax differentiates with features designed to make taxes idiot-proof even for first-time payers. For example, it tailors forms to their situation (for example, users who changed jobs in the middle of a tax year), tells users what deductions they are eligible for, calculates capital gains, and lets them know if they are risk for being audited. For enterprise clients, it reduces the amount of tax notices that companies receive by checking for errors, like typos in employees’ identification information.

Other competitive strategies include an Android app ClearTax is planning to launch in two weeks (in time for India’s tax season), since five percent of ClearTax’s customers already use its mobile website. The app will let users work on their tax forms even when their smartphones aren’t online. It is also working on a marketplace for certified accountants.

Almost two-thirds of ClearTax’s users are in their twenties, but a significant number—five percent—are senior citizens. The software is designed to be use by anybody who anticipates each year’s tax season with trepidation.

“Users cannot do this on their own and they become frustrated,” says Gupta. “It’s interesting to see the people coming to the company because the accessibility is quite high.”