Govt may water down angel tax provisions- The New Indian Express

After facing flak from angel investors and start-ups, the Central government is now planning to water down the ‘Angel Tax’ provisions in the upcoming Budget.

After facing flak from angel investors and start-ups, the Central government is now planning to water down the ‘Angel Tax’ provisions in the upcoming Budget. Further, the Department of Industrial Policy and Promotion (DIPP) is likely to redefine its criteria for recognising start-ups eligible for exemption from Angel Tax.

The move follows reports of start-ups being hauled by taxmen over ‘Angel Tax’. More than 60 start-ups, which were levied 30 per cent premium on investments made by external investors, have complained to the government so far. “The Angel Tax provision is hurting the start-up ecosystem. We have received several complaints as well as suggestions. We will come up with better and more conducive tax regime for the start-ups. CBDT (Central Board of Direct Taxation) had asked its taxmen to go slow on angel investors,” a senior Finance Ministry official told The New Indian Express.

As per the law, only start-ups recognised by DIPP with a valid certificate of recognition will qualify to be examined for Angel Tax exemption under the income-tax law. Others attract tax overvaluation under Section 56 (2) of Angel Tax. Officials claim that in the upcoming Budget, the government is considering abolishing of this Section.

“One of the things under consideration is the abolishing of Section 56 (2) of Angel Tax, under which several Start-ups were served notices. We will have another meeting next month and a joint decision will be taken in this regard,” the official added. Analysts opine that the current tax regime may kill the start-up culture, as only two start-ups had managed to get an exemption from Angel Tax since April this year.

Earlier this week, NITI Aayog CEO Amitabh Kant had openly spoken in favour of incentivising domestic funding in Indian start-ups and discouraging Angel Tax.

“This year alone, between January and September, seed stage capital declined by 20 per cent. We need to liberalise the Angel Tax provisions to unlock the domestic capital and trigger off a new wave of start-up value and job creation,” Kant had said. According to sources, a general consensus in the recently concluded meeting between the Finance Ministry and the DIPP was to tweak the very definition of start-ups itself, so that more of them would be exempted from Angel Tax.

What is Angel Tax?

If a start-up receives funding that is higher than its ‘fair market value’ from an angel investor (external investor), the investment amount will be considered as its income and 30 per cent tax will be levied. The issue is that there is currently no clear-cut way to assess the ‘fair market value’ of a start-up.