Govt eases norms for start-ups seeking exemptions from ‘angel tax’

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New Delhi, Jan 17: Facing sustained pressure from start-ups and venture capital funds over the so-called angel tax, the government has relaxed norms for seeking exemptions from the controversial levy. The government, via a notification issued on Wednesday, scrapped the existing mechanism to approve start-ups applying for tax breaks under Section 56(2)(viib) of the Income Tax Act.
While the tax hasn’t been abolished outright, as many demanded, start-ups need not go through the inter-ministerial board now. Instead, new applications will be directly evaluated by the Central Board of Direct Taxes (CBDT). Firms will have to submit their applications through the Department of Industrial Policy and Promotion (DIPP) website, after which it will be forwarded to the CBDT. The CBDT has also been mandated to evaluate and respond within 45 days of receiving such applications, a tax official said.
Also, the earlier requirement for start-ups to submit a report from a merchant banker specifying the fair market value of shares may be removed. Firms had complained this was very cumbersome. Angel investors need not share their income certificates with start-ups now.
Venture capital firms, however, remain unsure about how the new rules would help them.
They pointed out that only start-ups approved by the DIPP would be eligible.
“The inter-ministerial board was set up in May 2016, but it received very few applications seeking exemptions from the angel tax,” a senior DIPP official said.