CBDT Announces Angel Tax Verification Exemption for DPIIT Recognized Start-Ups

The Central Board of Direct Taxes (CBDT) has announced an exemption from angel tax verification for startups recognized by the Department for Promotion of Industry and Internal Trade (DPIIT). In accordance with DPIIT’s notification G.S.R. 127(E) on 19th February 2019, startup companies fulfilling certain criteria are exempted from the provisions of section 56(2)(viib) of the Income-tax Act, 1961.

Furthermore, CBDT, through notification no. 13/2019/F. No. 370142/5/2018-TPL(Pt.) dated 5th March 2019, specified that this exemption applies to consideration received by a company for the issuance of shares exceeding their face value when received from a resident, provided the company fulfills the conditions outlined in DPIIT’s notification G.S.R. 127(E) dated 19th February 2019.

Notably, the Finance Act 2023 has amended section 56(2)(viib) of the Act, removing the requirement for the consideration provider to be a resident, effective from 1st April 2024.

In response to reported instances of startup scrutiny, the procedure for assessing recognized startup companies under section 56(2)(viib) of the Act is clarified as follows:

1. If a recognized startup company’s assessment is solely focused on the applicability of section 56(2)(viib) of the Act, Assessing Officers will not verify this issue during proceedings under sections 143(2) or 147/143(2) of the Act. The contentions of recognized startup companies on this matter will be summarily accepted.
2. If a recognized startup company’s assessment includes multiple issues, including section 56(2)(viib) of the Act, the applicability of section 56(2)(viib) will not be pursued during the assessment proceedings. Standard procedures will be followed for other issues for which the case has been selected.

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