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Angel Tax

No Angel Tax for startups complying with Feb DPIIT notification: CBDT

Angel Tax

In a latest notification in regard to Angel Tax, the Central Board of Direct Taxes (CBDT) said that startups which got assessment notices under Section 56(2)(viib) of the Income Tax Act (IT Act) will be exempted from Angel Tax if they act in accordance with the Feb 19 DPIIT notification.

The Act shall not apply to consideration received by a company for issue of shares that exceeds the face value of such shares, and which fulfills the conditions specified by DPIIT, read CBDT notification.

The notification will solve the Angel Tax issue for some startups, who have got notices under Section 56. Though, it does not provide any remedy for startups already facing Angel Tax cases.

“This notification does not give a blanket exemption for startups. But it gives hope, because of the retrospective line that we can use this in the appeal stage and get an exemption. A blanket exemption could have solved time and efforts for the dept and startups. Also, one issue which remains is, who could be an investor and the accreditation guideline, which SEBI should clarify soon,” said Sreejith Moolayil, Co-founder of TrueElements.

As per the Feb 19 DPIIT notification, considerations of shares received by eligible startups for shares issued or proposed to be issued by all investors shall be exempted up to an aggregate limit of Rs 25 crore.

Under Section 56(2)(viib) of Income Tax Act, it majorly exempts investments into eligible startups by listed companies with a net worth of Rs 100 crores or turnover of Rs 250 Crore and investments by Non-Residents & Alternate Investment Funds- Category I.

The issue, however, remains for startups is extended exemption limit for NRI with Rs 50 lakh Accredited Investor and Rs 5 crore asset. Indian startups think they should be on par with the rest of the startup world.

The last month notification did not explain issued demand notices for Angel Tax and gave any information about how it will impact the startups that have only received an assessment notice.

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