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Breather for startups: Govt revises definition, widens Angel Tax net

Union Minister of Commerce & Industry Suresh Prabhu in a series of tweets widened the definition of startups amongst a host of other clarifications.

twitter-logo BusinessToday.In        Last Updated: February 19, 2019  | 14:05 IST
Breather for startups: Govt revises definition, widens Angel Tax net
The government Tuesday eased rules for startups by announcing a string of exemptions which includes the contentious and much debated issue of Angel Tax

The government Tuesday eased rules for startups by announcing a string of exemptions which includes the contentious and much debated issue of Angel Tax. Union Minister of Commerce & Industry Suresh Prabhu in a series of tweets widened the definition of startups amongst a host of other clarifications.

Prabhu revised the current definition of startups based on their incorporation date. "An entity shall be considered a Startup upto 10 years from its date of incorporation/registration instead of the existing period of 7 years." he said.

Redefining their meaning based on a starup's turnover, Prabhu stated, "An entity shall be considered a Startup if its turnover for any of the financial years since its incorporation/registration hasn't exceeded Rs 100 crore instead of existing INR 25 crore."

He also said that an exemption of upto an aggregate limit of Rs 25 crore will be allowed on issued shares or proposed shares to be issued by all investors.

"Considerations of shares received by eligible Startups for shares issued or proposed to be issued by all investors shall be exempt up to an aggregate limit of Rs 25 crore." He tweeted.

Startups at present get a tax concession on total investment including funding from angel investors only if the total investment does not exceed Rs 10 crore.

Prabhu added that all investments into eligible startups by Non-Resident, Alternate Investment Funds- Category I registered with SEBI shall also be exempt under Section 56(2) (viib) of Income Tax Act  beyond the limit of Rs 25 crores.

A Gazette notification in this regard will be issued today simplifying the process for startups to get exemptions on investments under section 56 (2)(viib) of Income Tax Act, 1961, he tweeted.

The announcement comes as a breather to several startups that have alleged to receive angel tax notices from income tax department (IT) affecting their businesses. Many startups have complained to have received notices from the IT department to pay taxes on angel funds received by them under Section 56 of IT Act.

Section 56(2)(viib) of the IT act states the funds from angel investors would be taxed at 30 per cent if they are in excess of their fair market value (FMV) and would be deemed as income from other sources.

The startups will have to file a duly signed declaration with the Department for Promotion of Industry and Internal Trade (DPIIT) for getting the exemption wherein, DPIIT will then forward it to the Central Board of Direct Taxes (CBDT) Department.

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