The Department for Promotion of Industry and Internal Trade (DPIIT) is deliberating the issue of accreditation of investors, investing capital in startups, with the Central Board of Direct Taxes for exemption from Section 56(2)(viib) of the Income Tax act, also known as the angel tax.

“We have held consultations with stakeholders on who can be the accredited investors. What can be the criteria for accredited investors (to invest) and who will accredit them, all this is under discussion right now. We would like to do this at the earliest,” DPIIT Secretary Ramesh Abhishek said at the IVCA Conclave on Thursday.

Investors’ accreditation has been among the key requests made by angel investors and angel networks investing in startups to the government.

The government had earlier said that investors with an annual income of Rs 50 lakh in the previous financial year and a net worth of Rs 2 crore will qualify for angel tax exemption. Investors had found this unwarranted because most of the times the initial money comes from friends and family in small amounts.

“For instance, if an entrepreneur raises Rs 5 lakhs from his relative, the amount will be taxed unless the relatives had the income of Rs 50 lakhs per annum or net worth of Rs 2 crores,” serial entrepreneur and partner at venture-builder platform GrowthStory K Ganesh told Financial Express Online earlier.

“Introducing a formal concept of “accreditor investor” will introduce an objective test for determination of eligibility of an investor. It will not only align the Indian funds industry with its international counterparts but will also lead to deepening the participation from domestic pools of capital by removing the artificial minimum investment criterion,” Shagoofa Rashid Khan, Partner & Head – Funds, Investment Advisory, Cyril Amarchand Mangaldas told Financial Express Online.

With respect to the March 9 deadline for e-commerce players to respond to the draft e-commerce policy launched last month, Ramesh Abhishek said that the department is “working on” the revised deadline but didn’t disclose the the time it would take.

DPIIT on Wednesday raised the angel tax exemption limit from Rs 10 crore to Rs 25 crore for investment made into startups by unlisted firms or individuals. Also, investments by listed firms having a net worth above Rs 100 crore or annual turnover of Rs 250 crore will be exempted from any such limit, the Financial Express reported.

“The idea is that startups should be able to raise funding from all sources. We have recommendations that AIF Category II (funds) should also be included in this (exemption bracket) and so we would like to recommend that to the ministry of finance,” Ramesh Abhishek said.

As per SEBI, real estate funds, private equity funds, funds for distressed assets, etc. are registered as AIF Category II.