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Angel Tax: Whopping 1100% jump in number of startups exempted in FY20 so far under Startup India

The controversial tax regime was introduced in the 2012-13 budget by the then Finance Minister Pranab Mukherjee to prevent money laundering.

Angel Tax: Whopping 1100% jump in number of startups exempted in FY20 so far under Startup India

The number of DPIIT-recognised startups getting the exemption, under the Startup India initiative, from the controversial Section 56(2)(viib) of the Income Tax Act also known as the Angel tax has seen a whopping over 1100 per cent jump in the current financial year so far. From 135 startups that were notified of exemption till March 29, as told earlier by a source with direct knowledge of CBDT’s notification to startups, 1,658 startups have been exempted as of November 25, 2019. The current data was shared by Commerce Minister Piyush Goyal in the Lok Sabha on Wednesday.

The controversial tax regime, which was introduced in the 2012-13 budget by the then Finance Minister Pranab Mukherjee to prevent money laundering, was levied on startups that have capital in exchange for equity shares at a price over and above the fair valuation of the shares sold even as the premium has to be paid by investors considered as income. Hence, it has been known as angel tax as the amount taxed is usually on angel investment in startups.

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The number of such exempted startups increased to 291 till April 10, 541 till May 27, to 672 startups till June 23. Finance Minister Nirmala Sitharaman had said in her budget speech ensuring startups that there would be no inquiry or verification by the Assessing Officer (AO) without supervisory officer’s approval. The Central Board of Direct Taxes (CBDT) had also in August this year issued a circular saying that DPIIT recognised startups “selected under ‘limited scrutiny’ with multiple issues or under ‘complete scrutiny’ including the issue u/s 56(2)(viib)” also known as Angel tax, would be free from inquiry by the AO without approval of the supervisory officer.

Goyal also announced exemption for 247 startups as on November 25, 2019, under Section 80-IAC in that provides for 100 per cent deduction to profits of eligible startups for three consecutive years out of seven years from the year of incorporation. “With a view to stimulate the development of Startups in India and provide them with a competitive platform, the profits of Eligible DPIIT Recognized Startups are exempt from income-tax for a block of 3 years out of 7 years since incorporation under Section 80IAC of the Income Tax Act,” the minister said as part of the information shared.

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