The ‘Obtuse Angel’ Is No More Taxing, As Centre Announces Relief For Startups 

The ‘Obtuse Angel’ Is No More Taxing, As Centre Announces Relief For Startups Representative image. (Oli Scarff/Getty Images)

The Union government on Tuesday (February 20) relaxed several restrictions to ease the burden of ‘angel tax’ on startups.

Commerce and Industry Minister Suresh Prabhu cleared a proposal to encourage investments into startups and simplify the process of exemptions under Section 56 (2) of the Income Tax Act.

Among the measures announced by the government include:

  • Exempting startups from tax on funding of up to 25 crore, up from 10 crore currently.
  • An entity will be considered a startup up to 10 years from the date of incorporation instead of seven now.
  • An entity will continue to be recognised as a startup if its turnover for any of the financial years since incorporation/registration has not exceeded Rs 100 crore in place of Rs 25 crore earlier.

Investments into eligible Startups by Non-Residents, Alternate Investment Funds- Category I registered with SEBI shall also be exempt under Section 56(2)(viib) of Income Tax Act beyond the limit of Rs 25 crore.

The relief from the 'angel tax’ will be available to all eligible startups retrospectively. The government has also decided not to pursue such cases until their appeals are disposed of.

The government has been facing a lot of criticism from startups and community of angel investors for what they perceive as unjustified tax demands.

The latest notification by the commerce minister addresses some of their core demands.

The Department for Promotion of Industry and Internal Trade (DPIIT) is expected to issue the notification.