CBDT declared Angel Tax Relief for 541 startups

The Central Board of Direct Taxes (CBDT) has granted an Angel Tax exemption for 541 startups, according to the Department for Promotion of Industry and Internal Trade (DPIIT).

The Secretary of DPIIT, Ramesh Abhishek tweeted that 36 applicants for this relief were incomplete and DPIIT is working with Startup India team to address deficiencies.

The update in this regard comes after the CBDT in February had allowed such exemptions to startups.  Ramesh also said that the government re-formed an inter-ministerial board to look at the applications for the relief.

The Angel Tax benefit falls under Section 80IAC of the Income Tax Act, allowing new organisations with as much as Rs 25 crore in sales to deduct their full income from selected operations while computing taxable income. The tax benefit is available for companies incorporated within five years starting April 2016.

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The move will be introduced on the day the National Democratic Alliance leaders take the oath and indicate the priority the coalition places on promoting startups and job creation.

Last month, it was reported that the government wanted to provide angel tax exemptions to startups that had received funds from recognised investors, subject to complying with certain net worth criteria.

This provision is in place as the government, as part of an exercise to define recognised investors, wanted to increase the investment flow in startups without the fear of angel tax.

“Accredited or genuine investors can invest any amount but we will make some criteria for that. It should be liberal enough so that all such people can come under its purview. But it should not be over liberal and extra-stringent,” a government official told PTI.

To be eligible for this benefit, startups have to sign up with DPIIT and submit an undertaking. The startups must not invest in segments that are suspected to be used for money laundering unless these investments are created ‘in the ordinary course of business’.

DPIIT will send the undertaking to CBDT to make sure that the registered companies do not receive any angel tax notices.

The angel tax is normally an impost on the additional capital raised by an unlisted firm through the issue of shares well beyond their market value. As indicated by Section 56(2)(vii)(b) of the IT Act, the excess capital so raised is treated as salary and taxed accordingly. While the segment was aimed at curbing money laundering, it had provoked new businesses and their financial specialists.