The controversial Angel tax was introduced by the then Finance Minister Pranab Mukherjee in the 2012-13 budget to check money laundering to be levied on startups that raised equity funding at a price over and above the fair valuation of the shares sold.
Following Finance Minister Nirmala Sitharaman’s announcement in the budget ensuring startups of no inquiry or verification by the Assessing Officer (AO) without supervisory officer’s approval, the Central Board of Direct Taxes (CBDT) on Wednesday issued a circular saying that DPIIT recognised startups “selected under ‘limited scrutiny’ with multiple issues or under ‘complete scrutiny’ including the issue u/s 56(2)(viib)” also known as Angel tax, would not face inquiry by the AO without approval of the supervisory officer.
CBDT said that there have been instances of notices being sent under Section 143(2) /147 by AOs to startup companies before the DPIIT notification since February 19 this year that are currently pending for disposal. The circular, as seen by Financial Express Online, also said that for even unrecognised startups “selected for scrutiny, inter alia on the grounds of applicability of section 56(2)(viib) or any other issue/s,” then too inquiry shall be carried by AO after the approval.
The controversial Angel tax was introduced by the then Finance Minister Pranab Mukherjee in the 2012-13 budget to check money laundering to be levied on startups that raised equity funding at a price over and above the fair valuation of the shares sold even as the premium has to be being paid by investors considered as income. Hence it was called as angel tax as the amount taxed is usually on angel investment in startups.
Till around third week of June this year, 672 startups were given angel tax exemption by CBDT, DPIIT had tweeted citing its secretary Ramesh Abhishek.
DPIIT had also proposed in its Vision 2024 document in April this year to exempt investments by alternative investment funds from angel tax, cut rates for the GST, launch regulatory sandbox for development of fintech products, tax exemption for ESOPs, and tax incentives for startup investments to reduce the compliance burden among startups.
Also, President Ram Nath Kovind during his joint address to the Parliament in June had stressed on the significance of India’s growing startup ecosystem. “Today India has joined the league of countries with the most number of start-ups in the world,” Kovind had said. India had around 7,700 technology startups ahead of the US and the UK, as per Nasscom-Zinnov Startup Ecosystem report last year.
Source- Financial Express.