No ‘ Angel Tax ’ for Start-Up Investors: Govt. [Read Notification]

Angel Tax - Startups - Taxscan

The Commerce Ministry likely to exempt Angel Tax for Start-up investors, according to sources. The Exemption limit being raised to Rs. 50 lakh from Rs. 25 lakh for returns on the Income a year before an investment.

Reportedly, Commerce and Industry Minister Suresh Prabhu has approved a notification pertaining to clause (VII-B) of Subsection (2) of Section 56 of the Income Tax Act to give relief to Angel Investors in the Start-ups.

The ambiguity lies in the valuation of these premium shares, wherein, the tax man sees angel investor valuations higher than fair market values and hence issues show cause notices to these Start-Ups.

The Central government decision came after a number of representations were made to Commerce and Industry Minister Suresh Prabhu by Start-Ups, seeking relief from the often ambiguous ‘Angel Tax demands, sources said, adding the step is expected to give a boost to the growing sector of Start-Ups.

A Start-Up, which is recognised by the Department of Industrial Policy and Promotion (DIPP), shall be eligible to apply for approval of exemption if the following conditions are fulfilled:

A) The aggregate amount of paid-up share capital and share premium of the Start-Up after the proposed issue of a share, if any, does not exceed Rs 10 crore.

B) The Investor/proposed investor shall have-

1)Returned income of Rs 50 lakh or more for the financial year preceding the year of investment/proposed investment, and

2) Net worth exceeding Rs 2 crore or the amount of investment made/ proposed to be made in the Start-Up, whichever is higher, as on the last date of the financial year preceding the year of investment/proposed investment.

The application of the recognised Start-Up shall be transmitted by the DIPP to the Central Board of Direct Taxes (CBDT) which has been given the final mandate to grant approval or rejection to the Start-Up within a period of 45 days for the purposes of ‘Angel Tax exemption.

To Read the full text of the Notification CLICK HERE