IVCA suggested to "automatically exempt" Section 56(2)(viib) of the Income Tax Act, 1961 or the "angel tax" for all DIPP-registered startups without any limit of total non-promoter capital raised or up to Rs 10 crores if required to satisfy CBDT concern.
The association for venture capital and private equity firms IVCA has suggested DIPP secretary Ramesh Abhishek to “automatically exempt” Section 56(2)(viib) of the Income Tax Act, 1961 or the “angel tax” for all DIPP-registered startups without any limit of total non-promoter capital raised or up to Rs 10 crores if required to satisfy CBDT concern.
“The primary recommendation of IVCA is that any registered DIPP start-up should be automatically exempt from the angel tax without limit. If a limit is desired, the automatic exemption may be made applicable to share premium up to Rs 10 crore received from non-promoter or exempt shareholders,” VC sector council member at IVCA and managing director at angel fund YourNest Sunil Goyal told FE Online.
IVCA has made several suggestions in a letter to Ramesh Abhishek to solve the issues around the ‘anti-abuse’ provision in the Income Tax Act in 2012.
In addition to the automatic exemption, IVCA suggested that any investment by high net worth individuals made along with an exempt investor such as SEBI registered AIF I VC fund should also be automatically exempted from demand notices.
Alternatively, the letter noted, all registered startups, who file the proposed angel investor declaration form of DIPP, which has the PAN numbers of all shareholders should be exempted from Section 56.
“At the outset, the law taxing infusion into companies should be abolished. If not, investment by any investor providing a PAN should not be taxed in the company’s hands,” said Harshal Kamdar, VC sector council member, IVCA, and partner, PwC.
IVCA further suggested a tracker on the CBDT website to track process progress with an assured timeline for decisioning if it feels that a specific-approval process is required and only that is acceptable from its anti-abuse angel to create an (rules-based) exemption.
Other related changes suggested by IVCA in the letter include allow startups (started between April 2013 when section 56(2)(viib) came into effect and 2016 when the registration process started) to apply for certification now, since they complied with the current startup norms on April 2013, or whenever they were started, before 2016.
“Get the older start-ups also to apply, if they qualify on or after that date, using the current norms for startups which are less than 7 years old, less than Rs 25 crore revenue annually, with an innovative product or service. For biotech startups the period is of 10 years,” said IVCA president Rajat Tandon.
IVCA also asked for extending the angel tax exemption to all SEBI registered AIF I and II funds from existing AIF I VC funds.