Mumbai: The government yesterday gave the much-awaited boost to the startup ecosystem generously. Major amendment was made to increase the exemption limit for Angel Tax.
The effect was given by way of a two-pronged move by way of raising the limit of angel tax exemption for startups and also revising the definition of such an enterprise simultaneously. When an investor invests in a startup at an often early stage, usually at the seed stage, he is called as an Angel Investor. It may be a group of investors or a family member, a group of friends or even a relative.
Where, such investors who invest in shares of the startup which are unlisted the price offered is often at a premium. The startups were made leviable to tax for the premium paid (excess of price paid over fair market value) as per section 56(2) of the Income Tax Act, 1961 at over 30%.
The aggregate consideration received by startups upto Rs 10 crore was carved out from levy of Angel Tax, the same has been raised upwards to Rs 25 crore. This widened limit increases the ambit of sources for investments for startups.
Suresh Prabhu was seen telling reporters after the announcement, “The higher Rs 25 crore threshold aims to cover almost all angel investments as most listed companies will now able to invest in startups without angel tax.”
Apart from above threshold enhancement, the definition for eligible startups was expanded too.
A statement by the Department for Promotion of Industry and Internal Trade (DPIIT) mentioned that “Consideration received by eligible startups for shares issued or proposed to be issued to a listed company having a net worth of Rs 100 crore, or turnover of at least Rs 250 crore will also be exempted.”
Besides, an entity shall be eligible startup upto 10 years from its date of incorporation instead of the existing period of 7 years. Suresh Prabhu tweeted as below:
To assuage the CBDT’s concerns, above exemptions are subject to certain conditions so that startups will neither be used for money laundering nor will receive investment from shell companies for tax evasion.
The move is much appreciated and is aimed at bringing back a positive landscape for the early stage startups in India.
