Angel tax won't haunt startups any longerLatest changes, notified on Wednesday, provide simpler mechanism for startups to claim exemption from this tax even for past investments, including to startups incorporated before April 2016
ETtech | January 17, 2019, 08:41 IST
inShare
Keen to promote entrepreneurship in the country, the government has liberalised the conditions for startups and investors to shield them from what has been called ‘angel tax’.
Angel tax won't haunt startups any longer
Latest changes, notified on Wednesday, provide simpler mechanism for startups to claim exemption from this tax even for past investments, including to startups incorporated before April 2016, the cut-off date for incentive under the startup policy announced by the government.
“All previous and future investments are covered, startups incorporated before April 2016 also covered,” Department of Industrial Policy and Promotion (DIPP) secretary Ramesh Abhishek told ET.
To claim the exemption startups and investors need to make an application via DIPP in a prescribed format along with necessary documents. The Central Board of Direct Taxes (CBDT) will then issue certificate of exemption within 45 days of the application.
The application will no longer be required to be cleared by the interministerial committee. Also, fair market valuation certificate from merchant banker is not needed any more. The application only seeks justification for the valuation of shares along with supporting document, if any.
ET had reported on Wednesday that changes are expected to shield startups from the tax.
Startups, whose aggregate amount of paid up share capital and share premium does not exceed ₹10 crore after the proposed issue of shares, are eligible for angel tax exemption. The notification also mandates angel investors to have filed income tax returns of at least ₹50 lakh for the year preceding the investment year, a measure that seeks to ensure there is no money laundering via this route.
Additionally, the investor’s net worth should exceed ₹2 crore or the amount of investment proposed in the startup, whichever is higher, as on the last date of the financial year preceding the investment year. No application for exemption can be made if assessment order has been passed by an assessing officer for the relevant financial year. There is relief for cases that are under process but where assessment order has not yet been passed.
Indian Private Equity and Venture Capital Association (IVCA) welcomed the notification.
“A simplified form to be filled by startups, which needs only the PAN details from investors, and some other simplified and basic information which can be easily provided to the regulators,” said Rajat Tandon, president of IVCA.
ANGEL TAX
Under Section 56 (2) of the Income Tax Act where a closely held company issues its shares at a price more than its fair market value, the amount received in excess of the fair market value will be taxed as income from other sources.
This section, touted as an antiabuse measure, was introduced by former finance minister Pranab Mukherjee in 2012. As it impacted angel investments in startups, it came to be called angel tax.
Levy of this tax on a number of startups had rattled the sector, creating pressure on the government to announce relief.
https://tech.economictimes.indiatimes.com/news/startups/angel-tax-wont-haunt-startups-any-longer/67566254
