Suresh Prabhu, the commerce minister on Feb. 19’2019 tweeted that the interpretation for startups has been broadened and that now an organization would be treated as a start-up for a span of ten years instead of seven from the date of its incorporation. Also, the angel tax privilege was further improved. This step was initiated to ease the protocols of conducting business for start-ups. An organization would also be called a start-up in case its financial output for any year from the date of its registration and/or incorporation has not surpassed rupees hundred crores. On the other hand, the previous limit for the same was rupees twenty-fivecrores. Considerations (in case any) of shares as accepted by worthy start-ups for contributions circulated or projected to be circulated by all venture capitalists would be excused up to rupees twenty-five crores.
The DPIIT(Department for Promotion of Industry and Internal Trade), PMO and CBDT have brought about this great transformation that would bring to our country great recognition and fame. This would also attract the required capital making for our country and in turn, would make it the fastest flourishing start-up country. As per section 56(2)(vii)(b) of the Income Tax Act, angel tax is the amount received in excess by a closely held company which has circulated its shares at a price which is greater than its fair market value. It would be charged under the income category (income from other sources).
There are multiple start-ups that were being taxed about thirty per cent of their angel investments and thus, it has been argued as it was seen that most of the start-ups much time to reach the break-even point. They thus, find thirty per cent taxes a little high. This is because it directly influences its early growth period.
It was also stated that under the Income Tax Act, section 56(2) (vii) (b) all investments into worthy start-ups by non-residents beyond the limit of twenty-five crores shall be exempt. There was also an announcement stating that a Gazette Notification would be circulated for getting an exemption on investments.
The ultimate aim of these changes is to move a step closer towards development, innovation and finally improve the end product/service. As per the latest records, there are about sixteen thousand start-ups that have Department for Promotion of Industry and Internal Trade level one recognition and only 90 start-ups received approval by the government for availing tax benefits.
These new regulations are anticipated to ease the protocols further allowing the start-up ecosystem to flourish. But as every coin has two sides, not everyone was happy with these changes. The official also announced that they would make compliance to CBDT and would, in turn, request them to drive fast track disposal for the various start-ups that have cases under appeal with an exemption under section 68 where PAN numbers of investors had to be included.