The Department for Promotion of Industry and Internal Trade and Central Board of Direct Taxation are likely to increase the exemption threshold for startups from the so-called Angel Tax. Under the new rules, companies whose share premium does not exceed Rs 25 crore will get immunity from the taxation. The earlier limit was Rs 10 crore .
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 exemptions will be based on the submission of audited financials and income tax returns of a startup, along with a self-certified declaration that the angel funds raised by the firm have and will not be used for inappropriate purchases. This is based on a submission made by LocalCircles and iSPIRT, people aware of the discussions told ET. The move will bring relief to a majority of startups that over the past few months have received notices from the I-T Department to pay tax on capital they ‘ve raised from angel investors.
The working committee put in place by DPIIT secretary Ramesh Abhishek on Feb 4 with the aim to accept suggestions and come up with solutions for the issue, also agreed to redefine startups as any entity incorporated for a period of up to 10 years with turnover not exceeding Rs 50 crore. Under the previous definition, the government of India recognised a startup as an entity incorporated less than seven years ago with a turnover of less than Rs 25 crore. A notification from the ministry of commerce and industry announcing these changes is expected to come as soon as February 11.
“What they’ve agreed to is a blanket exemption of Rs 25 crore in share premium for a DPIIT registered startup, regardless of the source – whether it’s from an individual, friends and family, unlisted company, etc. The CBDT will not question that,” said a person aware of discussions that took place on February 8. “This is going to be retrospective as well, meaning any startup that has a pending order can submit the required documents and the commissioner of appeals needs to take it into consideration,” the person added.
Source : Economic Times