Government Mulling Mechanism For Accrediting Investors To Protect Start-Ups Against Abuse Of Angel Tax Provision

Department for Promotion of Industry and Internal Trade (DPIIT) is working on a proposal to accredit investors to protect them from being subject to the ‘angel tax’ provisions while funding startups, reports Economic Times (ET).

The new framework will also allow accredited investors to fund startups without any limit. “We are examining if a mechanism can be created for accrediting investors,” said a government official.

This proposal aims to allay the fears of money laundering through investments in startups. If a startup receives funding from an accredited investor, then there is no need to instigate charges of wrongdoing and hence the investment will be free from scrutiny or be subject to angel tax.

Angel Tax

Recently the Union government relaxed several restrictions to ease the burden of ‘angel tax’ on startups. Some of the measures announced by the government include: Exempting startups from tax on funding of up to Rs 25 crore, up from Rs 10 crore currently and an entity will be considered a startup up to 10 years from the date of incorporation instead of seven now.

However certain critics stated that this relaxation did not go far enough to relieve the troubles of startups. Thus, this new proposal of accrediting investors will fill this gap.

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