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Angel tax: New DIPP notification has nothing to cheer about

With no retrospective relief in sight for startups, which have already received an assessment order, the notification has yet again given rise to a new set of discretionary processes with no certainty.

Rukmini Rao        Last Updated: January 17, 2019  | 20:54 IST
Angel tax: New DIPP notification has nothing to cheer about

The Department Of Industrial Policy And Promotion (DIPP) brought out a notification last evening claiming to have found the solution to the 'angel tax' woes of the startups to a great extent. The department in its tweet said, "After intense deliberation, the government has issued a notification to ease availment of angel tax exemption."

However, even a cursory look at the notification is enough to say that nothing much changes on ground for startups. With no retrospective relief in sight for startups, which have already received an assessment order, the notification has yet again given rise to a new set of discretionary processes with no certainty.

According to the new notification, you do not need inter-ministerial board's nod to seek angle tax exemption. However, some qualifiers do remain. One, for startups to avail the exemption, the aggregate amount of paid-up share capital and share premium of the startup after the proposed issues of shares should not exceed Rs 10 crore. Two, for the investor to qualify, she/he should have filed Income tax returns of at least Rs 50 lakh for the year preceding the investment year.

ALSO READ:Prolonged Angel Tax woes could derail Startup India forever, start-up founders warn PM Modi

However, these qualifications come with a clear proviso. The notification states the following: Provided that in case the approval is requested for shares already issued by the startup, no application shall be made if assessment order has been passed by assessing officer for the relevant financial year.

So, what happens to startups, which have already received notices? An affected startup founder who did not wish to be named said, "What do founders who have already received income tax notices now do? Where do I go now?" Sreejit Moolayil, co-founder of True Elements echoed the same thoughts. "This doesn't solve any issue. It's old wine in a new bottle and this is IMB 2.0."

The reason why start-ups are still not happy with the notification is simple. The founders of start-ups who have already received notices from the Income Tax department in pursuant of an assessment order will now have to resort to legal recourse, which means spending time and resources fighting their cause with the CIT, ITAT, high court and Supreme Court for relief.

The notification which again gives discretionary power to CBDT or Central Board Of Direct Taxes to act or decline on the exemption application causes further uncertainty to start-ups in spite of a timeline of 45 days for its disposal. Legal policy thinktank, Vidhi Legal's Alok Prasanna Kumar feels that the government is not recognising the root of the problem.

ALSO READ:Govt tweaks I-T Act to give start-up investors relief from Angel Tax

"The discretionary process to seek exemption from the so-called angel tax will not give much relief to start-ups. The government is arguing over price while the problem is with the principle of such an angel tax itself," he said.

However, the investor community is happy to some extent with the processes being simplified. Indian Venture Equity And Venture Capital Association has hailed the new notification. Rajat Tandon, President, IVCA said that the government has incorporated the feedback given by them and the same is reflected in the notification.

"The simplified form to be filled by startups, which only need the PAN details from investors and some other simplified and basic information, can be easily provided to the regulators," he said.

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