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No Angel Tax on registered startups

The government also decided to set up a dedicated cell under member of the Central Board of Direct Taxes for addressing the problems of startups.

ET Bureau|
Updated: Aug 24, 2019, 09.47 AM IST
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Until now, the department has recognised as 17,984 startups.
New Delhi: The so-called ‘angel tax’ would not apply to startups registered with the Department for Promotion of Industry and Internal Trade (DPIIT), the government announced on Friday.

“To mitigate genuine difficulties of startups and investors, it has been decided that section 56(2)(viib) of the Income-tax Act shall not be applicable to a startup registered with DPIIT,” said the finance minister.

Section 56(2) says that when a closely held company issues shares at a price more than its fair market value, the difference is taxed as income from other sources. This section, touted as an anti-abuse measure, was introduced by former finance minister Pranab Mukherjee in 2012. It came to be dubbed the angel tax owing to its impact on such investments in startups. The commerce and industry ministry had told the finance ministry that the tax was a major impediment to the flow of investments into startups.

Until now, the department has recognised as 17,984 startups.

The government also decided to set up a dedicated cell under member of the Central Board of Direct Taxes for addressing the problems of startups.

“The announcement will further pacify startups that angel tax is not a hindrance to further investments coming in and their ability to fund growth. It is a positive step as the panel will now look at the circumstances of every case before initiating any inquiry,” said Rajiv Chugh, national leader, policy advisory and speciality services, EY India.

Also Read

CBDT simplifies process of angel tax assessment for startups

Angel Tax measures on exemptions inadequate for startups, say industry experts

Angel tax was figment of people’s imagination: Piyush Goyal

No Angel Tax for DPIIT registered startups: FM Nirmala Sitharaman

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