Commerce Ministry Becomes Guardian Angel: Takes Up ‘Angel Tax’ Issue After Startups Get Notices By IT Department

Commerce and Industry Minister Suresh Prabhu has tweeted that his ministry has taken up the issue of ‘angel tax’ notices being served to startups with the Finance Ministry, reports Mint.

Prabhu was responding to a tweet by Manipal Global Education Chairman Mohandas Pai, who had asked for urgent government intervention to resolve the matter.

Several startups have been raising concerns about being sent notices demanding tax on angel funds under Section 56 of the Income Tax Act.

Section 56 of the IT Act is used to tax the excess income a company receives from charging a greater than fair market price for shares it issues.

Previously in April, the Centre had allowed startups to claim tax concessions if the total funding they received, including from angel investors, was within Rs 10 crores.

To avail such concessions, startups are required to receive certification from an eight-member inter-ministerial board.

“Notices issued on angel tax to startups may be for those that are not recognised by the Department of Industrial Policy and Promotion (DIPP),” speculated an income tax officer.

Angel Investors are those individual’s who invest their personal funds in startups. As per rules of the Commerce and Industry Ministry, an angel investor is required to have a minimum net worth of Rs 2 crore rupees, or an average returned income exceeding Rs 25 lakhs in the three previous financial years.