Angel-tax exemption for start-ups with up to Rs. 10cr funding
What's the story
Start-ups founded before 2016 may finally get an exemption from the much-talked-about Angel Tax, giving them a much-needed relief, reported ET. Changes in the tax regime would be finalized and notified soon by Department of Industrial Policy and Promotion. However, only those entities that have received up to Rs. 10cr in angel funding would be exempt, according to a senior DIPP official. Here's more.
Details
300 pre-2016 start-ups may get tax relief
DIPP would constitute a separate committee for recognizing start-ups that would get the Angel tax relief. About 300 start-ups that received funding from Angel Investors Network would benefit from the move to scrap Angel tax for some entities. Angel tax isn't levied on start-ups founded after 2016 and recognized under Startup India programme. However, there's no clarity yet on what constitutes Angel investment.
Angel Tax
Angel tax first introduced in 2012 Budget
Angel tax was introduced in 2012 by the then Finance Minister Pranab Mukherjee to combat money laundering through the practice of issuing shares in unlisted companies at high premiums. The tax is levied on the funding raised by unlisted entities in excess of their shares' fair market valuation. The excess capital is taxable as "income from other sources" under Income Tax Act's Section-56(II).
Information
DIPP held extensive decisions with experts
DIPP has reportedly discussed the issue of Angel tax with many experts from across various industries before getting ready to finalize the changes in the regime. The Income Tax Department, meanwhile, has directed the assessing officers not to act hastily in start-up-related cases.
Tax Exemption
Start-ups hoped for Angel tax relief in Budget
Exemption from the much-debated Angel tax was one of the key things start-ups expected from the Budget 2018. Abolition of Angel tax has been long demanded by start-ups. Now that DIPP is going to recognize those start-ups that were incorporated prior the notification in Feb'16, the tax issues faced by many such start-ups are expected to be resolved.
Hasmukh Adhia
Not Angel tax, but an anti-evasion measure: Finance Secretary
Meanwhile, Finance Secretary Hasmukh Adhia stated - calling the levy on excess capital as "angel tax" was wrong. He said, "We take (into account) valuation both on book value as well as discounted cash flow, certified by (a) chartered accountant. If you get a valuation...higher than DCF value, then we tax it." Adhia added, "This is not an angel tax-this is an anti-evasion measure."