Start-ups with investment up to ₹10 crore to get tax concession
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 to taxation of angel funds under Section 56 of the Income Tax Act, which provides for taxation of funds received by an entity. As many as 18 start-ups have received notices from tax authorities. This section provides
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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 income tax benefit for three out of seven consecutive assessment years. To avail the concessions, startups would have to approach an eight-member inter-ministerial board of certification.
“Department of Industrial Policy and Promotion (DIPP) has issued gazette notification...constituting a broad based inter-ministerial board to consider applications of start-ups for claim of following incentives of the I-T Act 1961,” it added.
A start-up set up as a private limited company or limited liability partnership incorporated after April 1, 2016, would be eligible for tax concessions. The ministry said these amendments are introduced to address key demands of start-ups with regard to exemptions under the I-T Act. Start-ups in the recent past have flagged their grievances to the government regarding angel tax provision, which they considered was not friendly to them.