Angel Tax
Earlier this week, the government liberalised norms including removing the need for an inter-ministerial committee's approval to avail angel tax exemption.
  • Saturday, January 19, 2019 - 10:10

The government’s decision to liberalise norms for availing angel tax exemption would solve the majority of the problems ailing the start-up sector and is only the first in a series of major steps, a top government official said on Friday.

In a big boost to startups and their investors, the government had earlier this week liberalised the norms including doing away with the need for an inter-ministerial committee's approval for availing angel tax exemption.

Besides removing the need for a fair market valuation certificate from a merchant banker, the DIPP reduced the need for documents limiting it to justification for valuation of shares, annual accounts of startup, net worth certificate of investor and income tax returns of both.

Startups whose paid-up share capital, including premium, does not exceed Rs 10 crore are eligible for the exemption.

"This will address 70-80 per cent of the problem. A lot of investment, which is made within the limit of Rs 10 crore, will be addressed by that," Department of Industrial Policy and Promotion (DIPP) Secretary Ramesh Abhishek said at the Vibrant Gujarat Global Summit here.

"We are calling some stakeholders in the first week of February to discuss if they have any implementation issues through the tax department," he said.

Angel tax, introduced in 2012, is levied on the difference between the amount received by a closely held company in lieu of its shares and the fair market value of the shares. The excess amount is taxed as income from other sources.

Abhishek said this was only the first in a series of steps to resolve the issue and there were other measures being planned.

"Like families and friends who invest in the early part - where the valuation may not be so high - we definitely would like to place a mechanism where even that does not get taxed because it is not the intention of the government to tax such investments at all," he said.

"Actually the government should be smartly incentivising these investments and not trying to block them, or tax them," he added.

Abhishek said that there were also discussions going on about how to make it easier for larger investments beyond Rs 10 crore by certain companies or individuals.

"This is the first major step in resolving the problem but it is surely not the last one," he said.