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Government to relax angel tax norms for Start-UPs

Date: 05 February 2019 Tags: Commerce & Industry

Government has decided to set up five-member working committee to look into angel tax issue and come up with guidelines. It also agreed to implement some key changes requested by start-ups regarding issue. The decisions were taken during meeting between officials of Department for Promotion of Industry and Internal Trade (DPIIT), Central Board of Direct Taxes (CBDT) and representatives of start-up community.

Proposed reforms in Meeting

  • Government will raise aggregate amount of paid-up share capital and share premium after proposed issue of share of startups eligible for tax exemption to Rs.25 crore.
  • Definition of start-up will be amended to include companies that have been in operation for up to 10 years rather than the previous limit of 7 years.
  • Limit on angel investor for filing income tax returns will be reduced. It will now be Rs.25 lakh for year preceding in which investment was made and net worth limit also reduced to Rs.1 crore from 2 crore.
  • Angel tax will be not scrapped as money laundering was major problem especially by shell companies or dubious startups.

What is Angel Tax?

  • It is term used to refer to income tax payable on excess capital raised by unlisted company through issue of shares over and above fair market value of those shares.
  • This excess capital is treated as income and taxed accordingly. It has come to be called angel tax since it largely impacts angel investments in startups. It most commonly affects start-ups and angel investors who back them.
  • It tax was introduced in the 2012 Union Budget to arrest laundering of funds. Section 56(2)(vii) of Income Tax Act primarily deals with Angle tax.

 

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