Mumbai: In a relief to budding entrepreneurs, the Central Board of Direct Taxes (CBDT) on Monday increased tax exemption limit for startups to Rs 25 crore from earlier Rs 10 crore, according to sources.
According to the procedure to seek an exemption, a startup should apply, with all documents, to the Department for Promotion of Industry and Internal Trade (DPIIT) and the application of the recognised startup shall then be moved to the CBDT, sources said.
CBDT, after examining the credentials will decide and issue an exemption certificate, the sources added. However, tax for startups with more than Rs 25 crore of investment remains the same, they said. Last year, the government had allowed startups to avail tax concession only if total investment, including funding from angel investors, does not exceed Rs 10 crore.
In January 2019, the government had eased the procedure for seeking income tax exemption by startups on investments from angel funds and prescribed a 45-day deadline for a decision on such applications of budding entrepreneurs. Section 56(2)(viib) of the Income Tax Act provides that the amount raised by a startup in excess of its fair market value would be deemed as income from other sources and would be taxed at 30 per cent.
Touted as an anti-abuse measure, this section was introduced in 2012. It is dubbed as angel tax due to its impact on investments made by angel investors in startup ventures. Startups will have to provide account details and return of income for the last three years. Similarly, investors would also have to give their net worth details and return of income.
‘As per the Startup India action plan, startup means an entity, incorporated or registered in India not prior to five years, with annual turnover not exceeding Rs 25 crore in any preceding financial year, working towards innovation, development, deployment or commercialisation of new products, processes or services driven by technology or intellectual property.
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