In some relief to startups who remain concerned about Angel Tax and the IT notices some of them have been receiving, a senior government official told Economic Times that startups incorporated before 2016 that have got up to Rs 10 crore in angel funding won’t face angel tax.
Once the Department of Industrial Policy and Promotion (DIPP) makes changes in the regime and notifies the government, these changes will come into effect. DIPP is also looking at setting up a committee to recognize such startups. These changes will resolve the issue of the pre-2016 startups and the govt official told ET that DIPP will take into account enough safeguards before recognizing the startup.
The Angel tax, introduced in 2012, is tax levied on capital raised by unlisted companies, which exceeds their fair market value. However, several startups have been raising funds from Angel investors with high valuations, and have received notices from the income tax department. With the idea of preventing misuse and conversion of black money into white, IT officials issued a number of notices under this provision with some of them being sent to startups.
The startup industry was hoping for relief from Angel tax in the budget, but were left disappointed. However, with DIPP recognizing startups that were floated prior to the launch of the policy, tax issues faced by them could be resolved.
ET reported on Monday that DIPP was looking to exclude startups founded before 2016 from Angel Tax. Startups incorporated after 2016 and recognized under the Startup India policy don’t need to pay this tax. DIPP is talking to startup founders and experts across the industry to finalise the framework, starting with asking officers to not take any hasty action in cases related to startups.
Calling it an anti-evasion measure for the government, Finance secretary Hasmukh Adhia further added that no adjustment will be made if it is a DIPP-recognized startup.