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Government eases process for startups to seek tax exemption on angel fund investments – The Economic Times

The government has eased the procedure for startups to seek income tax exemption on investments from angel funds as part of efforts to address concerns of budding entrepreneurs, official sources said.

Various startup founders have recently claimed of receiving notices under Section 56(2) (viib) of the Income Tax Act from the I-T department to pay taxes on angel funds raised by them.

“Commerce and Industry Minister Suresh Prabhu has approved a notification pertaining to this clause to make allowances for angel investors. A formal notification to this effect would be issued soon by the DIPP,” sources said.

To seek the exemption, a startup will apply, with all the documents, to the department of industrial policy and promotion (DIPP). The application of the recognised startup shall be moved by the department to the Central Board of Direct Taxes (CBDT) necessary documents.

“CBDT has been mandated to grant exemption approval to the startup for the purposes of this clause or they can decline to grant such approval within a period of 45 days from the date of receipt of application from the DIPP,” they said.

Earlier procedure of applying to an inter ministerial board of certification for approval under this clause has now been done away with.

“Application procedure has been simplified by making application to CBDT through DIPP,” they added.

The earlier requirement of startup to submit report from merchant banker specifying the fair market value of shares has also been removed.

As per the revised procedure, a startup which is recognised by the DIPP would be eligible to seek exemptions, subject to certain conditions.

Startups will have to provide account details and return of income for last three years. Similarly, investors would also have to give its net worth details and return of income.