CBDT Acts On Finance Minister’s Assurance, Simplifies Angel Tax Exemption Process For Start-Ups

Moving on Finance Minister Nirmala Sitharaman’s assurance of a conductive environment for start-ups during her budget speech, the CBDT has issued a circular to its assessing officers regarding pending angel tax cases.

The department has made it mandatory for its officers to proceed with scrutinising angel capital raised by start-ups only after acquiring permission from a supervisory officer. This procedure will apply for start-ups which are still to receive Department for Promotion of Industry and Internal Trade (DPIIT) recognition.

“Where the start-up has been recognised by the DPIIT but the case is selected under ‘limited scrutiny’… no verification on such issues will be done by the AOs (Assessing Officers) during the proceedings… and the contention of such recognised start-up companies on the issue will be summarily accepted,” the CBDT’s circular read.

If a start-up has obtained recognition from the DPIIT, but is still being scrutinised by an assessing officer for several issues, scrutiny cannot be pursued through the anti-evasion provision of the Income Tax Act, 1961. The said provision, Section 56(2)(vii)(b) has earlier been used to serve notices to start-ups over the share premiums they receive over the fair market value as determined by the department.

“The startups can now take their exemption certificate and this notification to the AO and seek relief from the scrutiny,” Sachin Taparia, founder of LocalCircles has said.