Change in Startup definition and Angel tax in India.
19th, February 2019 - News
Today the Minister for Commerce and Industry Suresh Prabhu announced the revision in startup definition and angel tax, said entity shall be considered a startup upto 10 years from its date of incorporation / registration instead of the existing period of 7 years.
"An entity shall be considered a startup if its turnover for any of the financial years since its incorporation/registration hasn’t exceeded Rs 100 crore instead of the existing Rs 25 crore," the minister highlighted. He also said that the consideration of shares received by eligible startups for shares issued or proposed to be issued by all investors shall be exempt up to an aggregate limit of Rs 25 crore.
The minister added that all investments into eligible Startups by Non-Residents, Alternate Investment Funds- Category I registered with SEBI shall also be exempt under Section 56(2)(viib) of Income Tax Act beyond the limit of Rs 25 crores.
The above proposal from government is looking to simplify the process of exemptions for Startups under section 56 (2) (viib) of the Income Tax act.
This is big relief for the startups and entire ecosystem in India. Many founder and Startup CEOs welcomed the changes and happy that government is listening to their voice.
“Doing away with the Angel Tax for Start-ups was a much needed and long pending correction. We are glad that the decision to discard it has been made in the larger interest of the thriving Start-up community. We thank the Hon’ble Union Minister of Commerce & Industry and Civil Aviation – Shri Suresh Prabhu for bringing about this change. The decision will help Start-ups to focus on scaling up their projects while the VCs and investors will be able to invest in the projects with a view on the long-term. Start-ups will now be in a better position to consolidate and eventually may go on to become successful companies. A long term approach always helps generate all-round development and healthy returns for all the stakeholders in the enterprise. This development will help Start-ups become employment and revenue generators. The prosperity of the Start-up ecosystem is a definite boost to the Indian economy, to technology development, and to net-worth building. It will help create conducive business environment for innovation and growth in the country,” says Mr Rajan Sharma, Founder & CEO, excess2sell.
As per the new definition Startup are considered for the tax exemption if it fit under these circumstances. A startup will be eligible for exemption if it is a private limited company which is recognized by DPIIT and is not investing in building or land appurtenant thereto; land or building, or both, not being a residential house; loans and advances, other than those extended in the ordinary course of business; capital contribution made to any other entity; shares and securities; a motor vehicle, aircraft, yacht or any other mode of transport, the actual cost of which exceeds ten lakh rupees, other than that held by the startup; and jewellery other than that held by the startup as stock-in-trade in the ordinary course of business.
Startups would have to file a duly signed declaration with DPIIT for availing the exemption. The department will then forward it to the CBDT.
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