Govt announces no Angel Tax on DPIIT registered startup

The government has announced that there would be no angel tax levied on the startups that are registered with the Department for Promotion of Industry and Internal Trade (DPIIT).

The move will benefit 21.417 startups across India, that are registered with the government body.

Section 56 (2) viib of the Income Tax Act, which had come to be known as the angel tax, counted any investment above the fair market value of shares as income from other sources and was taxes accordingly.

"We have issued several circulars and will issue further if necessary. The anti-abuse provision will not apply to startups registered with DPIIT," Ajay Bhushan Pandey, revenue secretary said.

As a result of this provision, in November 2018, the Ministry of Consumer Affairs (MCA) issued notices to more than 2,000 startups that had raised money since 2013.

Any startup with any income tax issues can approach the cell for a quick resolution.

The finance minister also announced a dedicated cell under the Central Board of Direct Taxes (CBDT) to address startup issues.

During the budget in July, the finance minister had said that in order to resolve the issue of angel tax, entrepreneurs and investors who file requisite declarations and provide information on returns will not be subject to scrutiny on the valuation of share premium under the act.

The estimates say that there are around 50,000 startups existing in India, as of date.

“The government has been pro-active in addressing the concerns of startups and has taken a number of measures in the recent past in this direction.  Removal of angel tax will go a long way in building trust and confidence in the startups and the investors, and shows the government’s resolve towards ease of doing business in India and encourage entrepreneurship,” said Vikas Vasal, Partner & National Leader – Tax, Grant Thornton India.

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