Angel Tax

Recognised startups get confirmation on Angel Tax exemption from CBDT

Angel Tax

Call it an election effect or result of startups struggle in India, the government has sent formal mail confirming the exemption of Angel Tax for startups, who have applied for exemptions.

The CBDT mail to a startup, which had applied for exemption, said that the provisions of clause (viib) of sub section 2 of Section 56 of the Income-tax Act,1961 (‘Act’) shall not apply to it.

The full letter is listed below.

CBDT startups

However, there is no confirmation on whether this applies to all startups.

About 128 startups, who had filed for the exemption certificate, had demanded from CBDT to not get bothered by Section 56 (2) (viib). CBDT has been requested to set up the infrastructure needed to automatically remove registered startups from angel tax scrutiny.

Earlier, startups also said that acknowledgement mail sent by CBDT for exemption was in a single line and need to be enhanced.

Out of the total startups, about 92 had got the acknowledgement letter from CBDT.

Rest of the startups’ applications are said to be not processed due to documents related issues. In the coming days, they are also expected to receive confirmation.

Startups are issued notices under two income tax sections — 56(2)(viib), which deals with valuations (classification of funding as income or investment), and Section 68, which is about unexplained credit.

Many startups majorly raised concern over Section 56 of the Income Tax Act, which says if a closely held company issues its shares at a price more than its fair market value, the amount received in excess of the fair market value will be charged as income from other sources.

Startups are levied around 30 per cent Angel Tax on investments made by external investors.

Last month, the DPIIT had issued a notification stating that registered start-ups would be exempt from the angel tax if they met certain conditions. The Department was to send the names of such start-ups to the CBDT.

In the last few months, there has been back-and-forth shift of blame between the Central Board of Direct Taxes and the Department for Promotion of Industry and Internal Trade happening over the infrastructural roadblocks to finding a solution to the Angel Tax issue.

Is the latest move by CBDT be the end of Angel tax for startups? In part, it seems to be the end of angel tax for some qualified startups. For all others, it may still be a long road ahead.

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