Angel Tax Relief for Start-Ups applicable from 19th February: CBDT

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The Central Board of Direct Taxes (CBDT) has said that the angel tax relief for startups facing tax demands for selling shares at a premium to their fair market value will be effective from 19 February.

A notification issued by the Board on Tuesday said that the exemption declared on 19th February for startups from taxation of share premium in excess of fair market value subject to riders is applicable from that day. That announcement made by the commerce ministry has now been given effect under the Income Tax law.

Section 56 (2) (viib) of the Income Tax Act — which came to be known as the angel tax provision will not apply to funds received beyond the face value of shares from a resident if it fulfills the riders specified in the commerce ministry’s 19 February notification and files a declaration, CBDT said in the notification. “This notification shall be deemed to have come into force retrospectively from the 19th February 2019.”

Last month, the Commerce Ministry has announced exemption to the startups up to Rs. 25 crores from the angel tax provision, up from the current Rs. 10 crore. It had also said startups with sales of up to Rs. 100 crore will be eligible for tax relief. Earlier, the threshold was Rs. 25 crore. According to the new norms, an entity is considered a startup eligible for relief for up to 10 years from the date of incorporation, up from the earlier seven years.

The relief is expected to encourage wealthy individuals to invest in startups that receive capital at a premium due to their innovative business models although the valuation is not justified by the physical assets they hold.