CBDT relieves startups and angels from past notices over Angel Tax

In line with a new scheme to provide relief to startups and angel investors, the Central Board of Direct Taxes (CBDT) has decided to not press for payments of assessment orders and tax demands until the case has been decided at first stage of the appeal.

No action will be taken on past notices issued to startups and investors. They can approach CBDT to get relief on the same, according to an ET report.

The CBDT board will soon issue circular in this regard. All cases will now onwards be fast-tracked.

In 2016-17, about 117 startups assessment were done, out of which 19 cases subjected to tax demands. In these cases, CBDT will tell its officers to not press ahead and asking startups to pay taxes. Instead, it has instructed them to wait till first stage appeal to press the demand. These cases will benefit from the decision.

Now officers will be asked to follow new DIPP scheme.

On Wednesday, Commerce Ministry eased out few demands of startups over Angel Tax. Suresh Prabhu gave nod to make required changes, especially Section 56(2) (viib) of the Income Tax Act clause, and make allowances for angel investors. It also said that a fair market valuation certificate from a merchant banker is not required anymore.

CBDT will look after exemption applications made by startups, it added. Startups will apply for an exemption to the DIPP first. Then the application goes to CBDT for detailed audit and action.

Do you think raising angel money was tough, then wait until you get a Angel Tax notice!

Till now, startups are levied around 30 per cent Angel Tax on investments made by external investors. Around 400-500 startups get angel funding every year in India.

CBDT has been mandated to grant exemption approval to startups or they can decline it within a period of 45 days from the date of receipt of application from DIPP.

From now onwards, the application clearance will not require the involvement of the inter-ministerial committee.

Nevertheless, new notification merely brings required amendments to foster vibrant startup and angel investment ecosystems. There are several exemptions startups have been demanding include:

• All DIPP registered startups to be exempted from Angel Tax

• The responsibility of startups should be just to declare the fund raise and share the PAN details of the investor. Current notification expects startups to share details and seek permission, which was the practice in pre 90’s license raj

• Let there be no discrimination on who can invest on the basis of income. If at all there has to be a criteria, it must be just an accreditation of an investor something like what SEBI does for VC’s