DPIIT To Issue List Of Startups Exempted From Angel Tax; Maximum Time Limit For Exemption Increased To 10 Years

DPIIT To Issue List Of Startups Exempted From Angel Tax; Maximum Time Limit  For Exemption Increased To 10 YearsRepresentative image. (Priyanka Parashar/Mint via Getty Images)

Department of Promotion of Industry and Internal Trade (DPIIT) and Central Board of Direct Taxes (CBDT) will publish a list of startups that will be exempt from paying angel tax exemption, reports The Hindu.

Eligibility in the list will be based on startups’ audited financial statements and income tax returns of the previous year.

Government is also considering to increase the maximum time limit below which a firm would be deemed eligible for angel tax exemption from seven years to ten. The startups with a paid-up share capital below Rs 25 crore will be eligible for inclusion in the list.

“The DPIIT and the CBDT have agreed to these and the notification will be issued shortly. They also have agreed to increase the length of operation clause and have also increased the share capital clause to ₹25 crore,” said a source to The Hindu.

Commenting on the issue of ongoing investigation of certain startups for violation of angel tax norms, a source said, “Regarding the cases where notices have already been sent, the government officials are saying they are going to instruct the relevant authority to close the case as soon as possible, and also take into consideration the fact that the company is registered as a startup with the government.”

The Tax

Under the Income Tax Act, the share premium received by the startups from the investors higher than their fair value was treated as ‘income from other sources,’ and therefore attracted tax liability.

While the startups contend that this ‘angel’ tax imposes extra costs on them and threatens their growth, the government notes it helps to prevent politicians and others from obtaining bribes from startups in the guise of premiums on unlisted shares. Responding to the their demands, the government has taken several steps to facilitate non-cumbersome and business-friendly tax regime.

Also Read: Disciplining The Not-So-Angelic Angel Tax