A long-standing demand of startups, investors and industry bodies to scrap Angel Tax to the government is all set to turn into reality.
Department for Promotion of Industry and Internal Trade ( DPIIT) and Central Board of Direct Taxes (CBDT) after a meet on the subject have jointly decided to give a blanket exemption to all startups that are recognised by DPIIT (formerly DIPP).
The exemption will be applicable to startups whose total investment will be less than Rs 25 crore, said NDTV report quoting sources close to the development.
A newly constituted firm will be classified as a startup only up to 10 years.
Startups, looking for Angel Tax exemption, will have to submit self-certified declaration along with audited financials and Income Tax returns of the previous year.
DPIIT will first validate the documents and then CBDT will do the rest ensuring that recognised startups do not get notices for angel tax, added the sources.
An official notification in this regard is expected to be issued early next week.
Angel investment is an early stage fund infused by individuals that helps a startup to experiment and grow. Currently, startups are levied around 30 per cent Angel Tax on investments made by external investors. It was first introduced in 2012.
Over the last couple of months, stakeholders in the startup ecosystem have expressed their fear for severe implications of draconian Angel Tax after receiving multiple notices.
In one of the recent developments that was first reported by Entrackr, Income Tax department froze four bank accounts of TravelKhana (Duronto Technologies Pvt Ltd) and withdrew about Rs 33 lakhs on a pretext of tax liability on investments raised by the company from Angel investors.
The development shocked the entire startup ecosystem and led to widespread criticism of govt’s step by veteran entrepreneurs on micro-blogging site Twitter.
CBDT in a detail response, however, said that Travelkhana failed to substantiate the source of the deposit, which in absence of stay against recovery become due, and resulted in a seizure of the amount.
CBDT on Rs36 lakh seized from startup Travel Khana:Additions were made u/s 68 of I-T Act,1961 on account of unexplained cash credits¬ 56(2)(viib) on account of premium on shares as alleged(that it is violation of CBDT instructions regarding recovery of dues in Angel Tax cases) pic.twitter.com/ffER9tqy01
— ANI (@ANI) February 8, 2019
Nevertheless, Pushpinder Singh, founder, and CEO, TravelKhana tore apart CBDT’s claim with detailed chronological events in a response on Twitter.
— Pushpinder Singh (@pushpinder) February 8, 2019