Start-ups that have raised up to ₹10 cr to get tax concession

NEW DELHI: Giving major relief to budding entrepreneurs, the government on Thursday allowed start-ups to avail tax concession only if total investment including funding from angel investors does not exceed ₹10 crore.

As per a notification by the commerce and industry ministry, an angel investor picking up stakes in a start-up should have a minimum net worth of ₹2 crore or should have an average returned income of over ₹25 lakh in the preceding three financial years.

“With the introduction of amendments through this notification, start-ups are likely to have an easy access to funding which in turn will ensure ease in starting of new businesses, promoting start-up ecosystem, encouraging entrepreneurship, leading to more job creation,” the ministry said in a statement.

Several start-ups have raised concerns over taxation of angel funds under Section 56 of the Income Tax Act, which provides for taxation of funds received by

SEVERAL STARTUPS HAVE RAISED CONCERNS OVER TAXATION OF ANGEL FUNDS UNDER SECTION 56 OF THE INCOME TAX ACT

an entity. As many as 18 start-ups have received notices from tax authorities. This section provides that where a closely held company issues its shares at a price more than its fair market value, the amount received in excess of the fair market value will be charged to tax the company as income from other sources.

Start-ups also enjoy tax benefit for three out of seven consecutive assessment years. To avail the concessions, start-ups would have to approach an inter-ministerial board. “Department of Industrial Policy and Promotion has issued gazette notification ... constituting abroad based inter-ministerial board to consider applications of start-ups for claim of following incentives of the I-T Act 1961,” it added.