277 startups get an all clear certificate from income tax department
A few of the startups have discrepancies in the forms which DPIIT is looking to solve
DPIIT and CBDT amended the startup framework in February
In a movement showing the power of collaboration, the angel tax relief announced by the Department for Promotion of Industry and Internal Trade (DPIIT) is bringing about change as 277 startups get an all clear certificate from income tax department.
The development was confirmed to Inc42 by Nakul Saxena of iSPIRT Foundation. He said, “Out of 303-304 startups which had applied to DPIIT for relief, 277 have received the clearance while the rest of the 25 odd startups have some discrepancies with the forms which DPIIT is looking to solve.”
It is to be noted that the DPIIT notified changes in Section 56 (2) (viib) of the Income Tax Act, 1961 in the February 19 notification. The section 56 (2) (vii)(b) of the Income Tax Act provides that if a closely held company issues its shares at a price more than its fair market value, the amount received in excess of the fair market value will be taxed as income from other sources.
However, according to the new notification:
- Startups will continue to be considered as startups till a period of 10 years since their incorporation. Turnover of the entity for any of the financial years since incorporation/registration has not exceeded INR 100 Cr.
- All the startups are liable to receive angel tax exemption regardless of their share premium values given that the aggregate amount of paid-up share capital and share premium of the startup after issue or proposed issue of share, if any, does not exceed, INR 25 Cr.
As part of the announcement, the Central Board of Direct Taxes and DPIIT also amended the startup framework following which startups can apply to the DPIIT for approval and recognition under the new framework, which is then vetted by the CBDT.
Also, to give relief to the startups which had already received the Income Tax notices, CBDT said that startups which received assessment notices under Section 56(2)(viib) of the Income Tax Act (I-T Act) will be exempt from Angel Tax if they comply with the February 19 notification.
With more clarity on the issue of angel tax, the new financial year brings hope for the early-stage funding of Indian startups and we can expect more active participation from angel investors in the future.
