A recent move ensures that genuine entrepreneurs will not be affected by the government’s tax provisions on share premium, considered as a part of income. That is, the government has exempted all the registered startups from paying taxes on the income received from selling shares under ‘angel tax’.
Angel tax is the income tax payable by startups on the capital raised via the issue of shares through off-market transactions. The tax is levied on the capital raised from the sale of shares by unlisted companies from an Indian investor if the price of issued shares exceeds the fair market value of the company.
In this case, only the excess income is considered for taxation. Angel tax is not applicable if the investor is a non-resident or the investment is in the form of venture capital funds.
Before this move, the income tax department had exempted only the registered startups from paying angel tax. However, a few companies that had received tax demand notices were excluded from the same to provide them exemption at the appeals stage. Now, the exemption is made applicable to the companies that have received tax demand notice for the share premium as well.
Since the issue with angel tax is fixed, the companies can focus on areas such as cash flow management, capital raising, and growth.