FM announces no Angel Tax for registered startups: Startups seek more clarity

Emphasising reform as current government primary agenda, Finance Minister Nirmala Sitharaman announced on Friday that draconian Angel Tax will not apply to a startup registered with Department for Promotion of Industry and Internal Trade (DPIIT).

To mitigate genuine difficulties of startups and their investors, it has been decided that Section 56 2 (b) of the Income-tax Act shall not be applicable to a startup registered with DPIIT, said Sitharaman.

The govt has also decided to set a dedicated cell under the member of the Central Board for Direct Taxes (CBDT) for addressing the problems of startups.

A startup having any issue can approach the cell for quick resolution of problems, added the FM.

This is in addition to last notification in this regard by CBDT overruling the February notification released by the DPIIT. The eligible startups will get an exemption from the Angel tax levy even if their assessment orders were passed before February 19, said CBDT notification.

The FM did not say anything about non-registered startups. Till date, 21,417 startups have got DPIIT recognition.

However, startups, having witnessed a long delay and been harassed over angel tax, want official communication in this regard from CBDT before they can celebrate the move.

"We would like to see the communication from CBDT to believe this to be true and want to see as to what all are the conditions attached," said Sreejith Moolayil, Founder of True Elements.

And this is not a single concern.

"Unless something happens on the ground any such promises by govt has no value. What happens to those startup cases whose CIT appeal got rejected? How to contact the member body?," said Ayush Bansal, Founder, and CEO of iDreamcareer.

He also urged that there should be official communication to take care of startup cases, where CIT appeals are rejected and appeals underway at ITAT.

There has also been an issue regarding processing refund for startups, which sometimes take years and hurt startups.

"What to those whose tax refunds have been blocked in the name of angel tax? Will they get back tax refund?" asked Bansal.

Meanwhile, a few startups hailed government intention.

"The govt intention seems to be in place. The questions always has been about whether they can reflect the execution at assessment and ground level, said Sudhir Mody, Founder, and CEO of Maximmojo.

Over the years, Angel Tax has been termed as a draconian law that instead of promoting startups and investments, intilled fear among them.

Initially, introduced as a measure to curb tax evasion, the section 56 (2) (viib) of the Income Tax Act, 1961 ended up hurting the startups, who were raising money from angel investors and venture funds through private placement.

Till now, startups are levied around 30 per cent Angel Tax on investments made by external investors.