“Handle With Care” Tax Watchdog Issues New Directions For Startup Grievances

In another attempt to support easier solutions for income tax-related grievances of startups, the Central Board of Direct Taxes (CBDT) told the income tax officers to handle such issues with “utmost care”.

The direction in an order, accessed by PTI, has been sent to all regional chiefs of the I-T Department. CBDT has told the taxmen to sensitise its officers on how to handle startup issues. The order also asked the regional heads of the Income Tax Department to constitute a startup cell at their offices.

The CBDT order, issued on Monday, has given fresh directions for handling grievances of startups.

In case of any grievance, the preliminary action taken report is to be submitted to the office (CBDT) by the next day, that is within one working day of calling of the report by CBDT. The final ATR (action taken report) in this regard is to be submitted within three working days of calling of the report by CBDT.

In August, finance minister Nirmala Sitharaman announced that Section 56(2)(viib) of the Income Tax Act 1961 would not be applicable to the startups registered under DPIIT. Section 56 (2) (vii)(b) of the Income Tax Act said that if a privately 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.

Further, the minister said that the government will set up a dedicated cell under a member of CBDT for addressing problems of startups. Any startup with any income tax issues can approach the cell for quick resolution.

CBDT had then issued a consolidated circular consisting of all the clarifications on the tax issues hurting the Indian startups, including the angel tax. These guidelines were issued to ensure that the startups recognised by the departments for the promotion of industry and internal trade (DPIIT) will not face any action.

The department has done so to simplify the assessment process for the startups. In addition, the cases against startups registered with DPIIT will be dropped and the review officer will do a follow-up. The circular was issued to ensure that the startups are benefiting from the angel tax relaxation and exemption.

However, if any startup fails to comply with rules, it could be risking a severe angel tax penalty. The recent addition to the rules includes a 200% penalty if the startups don’t comply with the angel tax rules.

The minister of commerce and industry Piyush Goyal recently informed the parliament that the Central Board of Direct Taxes has exempted 702 startups under Section 56 (2) (vii) of Income Tax Act, 1961 till June 21. The government had been trying to ensure that only genuine benefiting from the relaxation of angel tax rules.