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Relief for startups facing angel tax notices

Updated : March 06, 2019 07:39 PM IST

In some relief to hundreds of startups across the country, which have received tax notices for raising capital above fair market value of shares, the Central Board of Direct Taxes (CBDT) on Tuesday has notified the modified norms to enable them to seek 'angel tax' exemption for investments of up to Rs 25 crore.

The modified norms, which are aimed at encouraging budding entrepreneurs, will be effective retrospectively from February 19, when the Department for Promotion of Industry and Internal Trade (DPIIT) relaxed the norms for startups.

The DPIIT, under the commerce and industry ministry, on February 19 raised the investment limit for angel tax exemption to Rs 25 crore and extended the period of availing benefits to 10 years for startups.

The DPIIT notification had brought out a new definition of startups and new criteria for exemption from angel tax. It changed the definition of startups to encompass entities up to a period of ten years from the date of incorporation with turnover not more than Rs 100 crore in any financial year. The February notification also directed these startups to get recognition from DPIIT.

Industry members welcomed the CBDT notification and said it will help startups that have already received notices under Section 56 of the Income Tax Act as well as those that might receive notices in the future since they can now show their eligibility under the February 19 notification.

However, industry experts from Ispirt and LocalCircles said this will not help startups which have already seen orders passed on the tax notices since that will have to go through a separate legal process.

As per industry estimates, over 2,000 startups have received assessment notices in recent years. As per LocalCircles, the number stood at 3,000.
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