Post Angel Tax Row I-T Dept Exempts 120 Startups

The income tax department has reportedly informed around 120 startups that they are eligible to receive an exemption from paying angel tax on the funding raised from angel investors.

With this, the startups can now produce the intimation from the Central Board of Direct Taxes (CBDT) before the tax officers who had issued the notices. Once the assessments are completed and final tax demands are issued, the companies can produce the exemption certificates at the stage of appeal to a higher authority within the tax department.

It was recently reported that the CBDT had begun sending acknowledgement emails to the startups who have filed Form 2 of the Section 56 Exemption Declaration certificate.

Citing unnamed sources, a Livemint report said that about 120 out of 150 startups that had applied so far has received the tag of ‘startup’ eligible for tax relief as of now.

This development came in after it was reported earlier this month that India’s startup ecosystem stakeholders had demanded the CBDT to expedite the process of issuing “Section 56 Exemption Declaration” certificates to startups.

The startups had to apply for exemptions from the angel tax from March since the DPIIT’s February 19 notification on angel tax but they were not receiving any confirmation to their submissions.

According to the angel tax law, startups are mandated to pay around 30% of angel tax on investments made by external investors. The rule became a central point for debate for both startup founders and investors who believed that the tax could hamper the growth of the Indian startup ecosystem.

Hearing the plea of the companies, the CBDT had said that startups which received assessment notices under Section 56(2)(viib) of the Income Tax Act (I-T Act) will be exempt from the tax only if they comply with the February 19 notification.

On February 19, the Department of Promotion for Industry and Internal Trade (DPIIT) notification had said that, all 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.

According to the new notification, registered companies will be classified as startups till a period of 10 years since their incorporation. Turnover of the entity for any of the financial years since incorporation/ registration should not exceed INR 100 Cr.

However, the department is yet to address the issues being faced by startups that have already received assessment orders. The certification process for the tax exemption under Section 80-IAC has been left unaddressed.

Note: We at Inc42 take our ethics very seriously. More information about it can be found here.