NEW DELHI: Giving a big relief to startups, the government has decided to relax
norms for startups, including increasing the investment limit to Rs 25 crore for availing income tax incentives by startups, an official said on Tuesday. Currently,
avail tax concession only if total investment, including funding from angel investors, does not exceed Rs 10 crore
Under Section 56 (2) (viib) of Income Tax Act, 1961, will be issued shortly, the official said.
The definition of startups has been enhanced to an entity which has been in operation for up to ten years since its date of incorporation or registration, instead of the current seven years.
“An entity will be considered as startup if its turnover for any financial year, since its incorporation or registration, the existing 25 crore instead of 100 crore rupees,” the official said.
Apart from this, Rs 25 crore limit beyond the investment companies with a net worth of Rs 100 crore or turnover of Rs 250 crore in a valid startup will be exempt from the section 56 (2) (viib) of the Income Tax Act.
“The issues of shares received by eligible startups for shares issued or issued to all investors will be exempted from a aggregate limit of Rs 25 crore,” the official added.
Also, investments in eligible startups by non-residents, alternate investment funds – category I – will also be exempt under this section beyond the limit of Rs 25 crore.
“For being eligible for exemption under section 56 (2) (viib), a startup should not be investing in immovable property, transport vehicles above Rs 10 lakh, loans and advances, capital contribution to other entities and some other assets except in the ordinary course of its business, “the official said.
A startup will also be eligible for exemption under Section 56 (2) (viib) if it is a private limited company recognized by the Department for promotion of industry and internal trade (DPIIT) and is not investing in specific asset classes.
Eligible startups only have a valid self-declaration by DPIIT for availing exemption. DPIIT will transmit these declarations to Central Board of Direct Taxes (CBDT).
Further, there is no requirement of making any application for exemption under this section and there will be no case-to-case examination of startups for exemption under section 56 (2) (viib) of Income Tax Act
“The valuation of shares is no more a criterion for exemption of investments in eligible startups under section 56 (2) (viib) of Income Tax Act, the official added.
The developments are important as many startups have claimed to receive angel tax notices, impacting their businesses.
Various startups have raised concerns on notices sent under Section 56 of Income Tax Act to pay taxes on angel funds received by them.
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 other sources of income as deemed and 30% at tax.
Touted as an anti-abuse measure, this section was introduced in 2012. It is dubbed as angel tax due to its investments on investment by investors in startup ventures.