In a major relief for startups, the Narendra Modi government has decided to relax angel tax norms, including increasing the investment limit to Rs 25 crore for availing income tax concessions.
Currently, startups avail tax concession only if total investment, including funding from angel investors, does not exceed Rs 10 crore.
"Considerations of shares received by eligible Startups for shares issued or proposed to be issued by all investors shall be exempt up to an aggregate limit of Rs 25 crore," tweeted Suresh Prabhu, the minister for commerce and industry.
The definition of startups has been enhanced to include entities which have been in operation for up to ten years from the date of incorporation or registration, instead of the current seven years.
Also, investments into eligible startups by non-residents, alternate investment funds - category I - shall also be exempt beyond the limit of Rs 25 crore.
A notification regarding simplifying the process for startups to get exemptions on investments under section 56(2)(viib) of Income Tax Act, 1961, will be issued shortly, Prabhu added.
The development assumes significance as several startups have raised concerns on notices sent to them under the 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 would be deemed as income from other sources and would be taxed at 30 percent.
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.
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