The government, on January 16, made it known that the procedure to seek income tax exemption for angel fund investments has been simplified for startups. Startups now do not have to get certification from an inter-ministerial department as they did earlier. Tax exemption applications for angel fund investments will now be processed by the Central Board of Direct Taxes (CBDT) directly and the startups have to go through the Department of Industrial Policy and Promotion (DIPP) to apply for such exemption.
This move came as a response to the request made by many startup entrepreneurs to abolish the angel funds tax altogether after they received notices under Section 56(2) (viib) to pay taxes for angel funds that were raised by them. Though the tax was not eliminated, the government eased the process and directed the CBDT to process the applications within 45 days.
In addition to the elimination of the step to obtain a certificate from an inter-ministerial body, the requirement to present a report from a merchant banker, that specifies the current market value of the shares, has also been scrapped out.
Startups, recognised by DIPP, will be eligible for tax exemption on the conditions that they provide details with regard to the return of income for the previous 3 years along with account details. The investors are required to show their net worth and return of income as well. Further, the income returned for the financial year preceding the year of investment should be at least Rs.50 lakh, and the net worth should be over Rs.2 crore or equal to the amount of investment made, whichever is higher, in the previous financial year.
Source: Money Control