Govt Eases Conditions and Investment Limit for Angel Tax concession to Startups

Highlights

  1. Government increases the limit from 10 crores to 25 crores for availing income tax concessions.
  2. A startup will be defined as an entity which has been involved in operations for up to ten years from its date of registration instead of seven years.
  3. The investments made by the listed companies with a net worth of INR 100 crores or turnover of INR 250 crores into a startup shall be exempted.
  4. Any amount raised by startups in excess of its market value would be considered as income from other sources and would be levied tax rate of 30%.

The government has made a decision to relax Angel Tax norms and increase the investment limit to INR 25 crores for availing Income Tax concessions by startups. This has come as a huge relief to startups.

In the current scenario, startups can benefit of tax concession only if total investment, including from Angel Investors do not go beyond INR 10 crores.

A notification related to simplifying the process for startups to get exemptions on investments under section 56(2)(viib) of Income Tax Act, 1961, will be issued shortly.

The definition of startups has been amplified. Soon, the startup will be defined as an entity which has been involved in operations for up to ten years from its date of registration instead of seven years.

“An entity shall be considered as a startup if its turnover for any of the financial year, since its incorporation or registration, has not exceeded Rs 100 crore instead of the existing Rs 25 crores,” the official said.

The investments made by the listed companies with a net worth of INR 100 crore or turnover of INR 250 crores into a startup shall be exempted from the section 56 (2) (viib) of the Income Tax Act, exceeding the INR 25 crores limit. Non-residents who have invested into startups shall also be exempted under this section, beyond the limit of INR 25 crores.

“Considerations of shares received by eligible startups for shares issued or proposed to be issued by all investors shall be exempt up to an aggregate limit of Rs 25 crores,” the official added.

“For being eligible for exemption under Section 56(2)(viib), a startup should not be investing in immovable property, transport vehicles above Rs 10 Lakh, loans and advances, capital contribution to other entities and some other assets except in the ordinary course of its business,” the official said.

A startup shall also be exempted if its a private limited company recognized by the Department for Promotion of Industry and Internal Trade (DPIIT) and is not investing in specified asset classes. The eligible startups have to file a duly signed self-declaration with DPIIT to avail exemption. DPIIT shall forward these declarations to Central Board of Direct Taxes.

Several startups have claimed to receive Angel Tax notices and have raised concerns regarding these notices that how it is impacting their businesses under the Section 56 of Income Tax Act to pay taxes on angel funds received by them.

Section 56(2)(viib) of the Income Tax Act says that any amount raised by startups in excess of its market value would be considered as income from other sources and would be levied tax rate of 30%.

Note: Angel tax is a term used to refer to the income tax payable on capital raised by unlisted companies via issue of shares where the share price is seen in excess of the fair market value of the shares sold. The excess realisation is treated as income and taxed accordingly.

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Source: Govt relaxes norms, investment limit for angel tax concession  to startups

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