Centre to decide on start-ups to be exempted from angel tax

The government will soon decide on the controversial angel tax, Central Board of Direct Taxes (CBDT) Chairman Sushil Chandra said on Thursday.

He said that the government was examining the issues faced by startups on the angel tax issue.”Very shortly we will find out a solution on the basis of the suggestions we have received. We will have to decide which startups are real startups and how they can be exempted from Section 56(2) of the Income Tax Act,” he said.

Last week, the Department for Promotion of Industry and Internal Trade (DPIIT), along with tax officials, had met several representatives of the start-up industry.

Chandra said that several suggestions have been received from start-ups on exempting them from the angel tax.

A decision will soon be taken on the kind of start-ups that can be exempted from angel tax by the I-T Department, he said.

Various start-ups have raised concerns about the notices sent to them under Section 56(2) of the I-T Act to pay taxes on angel funds. The law provides that the amount raised by a start-up in excess of its fair market value would be deemed as income from other sources and would be taxed at 30%.

Introduced in 2012, the provision of angel tax deals with the premium paid by the angel investors when they invest in the companies.

Last month, the government eased the procedure for seeking income tax exemption by start-ups on investments from angel funds and prescribed a 45-day deadline for a decision on such applications.

The new procedure says that to seek an exemption, a startup should apply with all documents to DPIIT. The application of the recognised start-up shall then be moved to CBDT. A startup recognised by DPIIT would be eligible to seek an exemption, subject to certain conditions.

Start-ups will have to provide account details and return on income for the last three years. Similarly, investors would also have to give their net worth details and return on income.