Reportedly, Government has decided to give exemption to Startups incorporated before 2016 that have got up to Rs 10 crore in angel funding. They won’t face angel tax, once changes in the regime are finalized by the Department of Industrial Policy and Promotion (DIPP), which will soon notify the amendment, a senior government official told ET.
It will also set up a separate committee for the recognition of such startups so that they get the relief, he said.
“We have finalized the conditions which will resolve the issue of pre-2016 startups,” the official said.
This will ease the concerns of about 300 startups that received funding from the Angel Investors Network.
“We will have adequate safeguards that would be taken into account when a startup is examined for recognition,” said the official.
The angel tax was introduced by then Finance Minister Pranab Mukherjee in the finance bill of 2012. The measure was aimed at tackling the laundering of money through high premiums on shares. The tax is applicable on the capital raised by unlisted companies in excess of the fair market value.
In 2016, the Government has decided to remove “angel tax” for investors providing funding to startups. The Prime Minister announced the Government-approved plan of granting relief to funding to startups. This is with an ambitious plan to boost startups and thereby to promote entrepreneurship and job opportunities in India. Resident angel investors, domestic family officers domestic family offices or funds which were not registered as VC funds have been excluded from tax.
Earlier, the funds raised by an unlisted company through equity issuance are charged to tax under the head “income from other sources” to the extent the amount is in excess of the fair market value under section 56(2) of the Income Tax Act, 1961. Such amount was taxable at the rate of 30%.