Govt frees startups from angel tax on funds raised in the last 7 yrs

Chennai: The government has exempted startups from “angel tax” on funds they have raised from investors in the last up to seven years after representations by many business groups in recent times on the matter.

The decision is expected to stop companies considering migration to other destinations, and boost investments into startups.

The Commerce and Industry Ministry issued a notification to simplify the process for startups to receive tax exemptions under an anti-evasion provision of the Act. This provision, Section 56(2)(vii)(b), deals with taxation of share premiums received in excess of the fair market value. The Central Board of Direct Taxes will notify the changes separately.

The move follows concerns raised by many regarding the taxation of angel investments in the startup ecosystem. Industry organisations had written to the Prime Minister in January pointing out that many startups had received tax notices in the previous months to pay a penalty on top of a 30 per cent tax on funds they raised in the last up to seven years.

“Definition of startups has been widened,” Commerce and Industry Minister, Suresh Prabhu, tweeted on Tuesday.

According to the Secretary, Department for Promotion of Industry and Internal Trade (DPIIT), Ramesh Abhishek, the changes will be applicable to over 16,000 startups already registered and recognised by the government as well.

According to the notification, eligible startups will receive tax exemptions on funds raised up to Rs 25 crore for shares issued or proposed to be issued to angel investors.

Besides this, any money received for shares issued to a listed company with a net-worth of Rs 100 crore or turnover of at least Rs 250 crore will also be exempted, said Abhishek and added that the Rs 25 crore limit will take care of all investments of promoters, relatives, friends, angel investors and beyond.