Investment limit for startups to avail tax sops to be raised
The government is contemplating hike in the investment limit for availing Income-Tax concessions by startups and provide a more clear definition for the purpose, sources said.
Giving relief to budding entrepreneurs last year, the government allowed startups to avail tax concession only if total investment, including funding from angel investors, does not exceed Rs 10 crore. Officials of the department for promotion of industry and internal trade (DPIIT) and Central Board of Direct Taxes (CBDT) are holding series of meetings to find a solution of the angel tax issue being raised by startups.
"We are considering several things, including hiking the limit to avail the tax concessions. A clear definition is also required for this," the sources said.
Though startups are demanding complete exemption from this tax, the government may increase investment limit for tax exemption to Rs 25-40 crore, they added.
CBDT Chairman Sushil Chandra has recently stated that they have received several suggestions from startups on exempting them from Section 56(2)(viib) of the Income Tax Act.
These meetings come against the backdrop of various startups raising concerns on notices sent to them under the section 56 of I-T Act to pay taxes on angel funds they have received.
The section provides that the amount raised by a startup in excess of its fair market value would be deemed as income from other sources and would be taxed at 30 per cent.
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. Last month, the government eased the procedure for seeking income tax exemption by startups on investments from angel funds and prescribed a 45-day deadline for a decision on such applications.
The new procedure says that to seek exemption, a startup should apply, with all documents, to DPIIT. The application of the recognised startup shall then be moved to the CBDT.