In a relief to the startup community with regards to angel tax, the Central Board of Direct Taxes (CBDT) said no coercive action will be taken against them.
Several startups have raised concerns on taxation of angel funds under Section 56 of the Income Tax Act, which provides for taxation of funds received by an entity.
Earlier in April, the government gave relief to startups by allowing them to avail tax concession if total investment including funding from angel investors does not exceed Rs 10 crore.
As per a notification by the commerce and industry ministry, an angel investor picking up stakes in a startup should have a minimum net worth of Rs 2 crore or should have an average returned income of over Rs 25 lakh in the preceding three financial years.
Section 56 of the Income Tax Act 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.