Won’t Stop The Startups: Government Simplifies Angel Tax Exemption Norms; Application To Be Processed Within 45 Days

The Union government has relaxed norms for startups seeking exemption from paying tax on investments raised from angel investors, reports Press Trust of India (PTI).

“CBDT has been mandated to grant exemption approval to the startup for the purposes of this clause or they can decline to grant such approval within a period of 45 days from the date of receipt of application from the DIPP,” said a Gazette notification referring to Section 56(2) (viib) of the Income Tax Act which imposes tax liability on angel funds.

Under the new norms, startups can now directly apply to Central Board of Direct Taxes (CBDT) through Department of Industrial Policy and Promotion (DIPP) for exemption. Previously, it had to be done through an inter-ministerial board of certification.

Also while startups have to file account details and return of income for last three years, they won’t have to submit a report from merchant banker specifying the fair market value of shares.

The issue flared up in November 2019 after over two thousand startups were issued notices by the Union Corporate Affairs Ministry (MCA) regarding their funding patterns and asked them if they had received any exemptions for ‘angel tax.’

Not so angelic

The tax provision was introduced in 2012 by the then Finance Minister, Pranab Mukherjee, according to which, 30.9 per cent tax had to be paid by small startups for raising funding from Indian residents (angel investors).

In January 2018, various Indian startups came together to file a petition asking the government to rollback the ‘angel’ tax.

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