The decision was taken after a round-table that DPIIT and CBDT had with key angel investors and startups on February 4. It was chaired by Abhishek.

The government has set up a small working group constituting of angel investors and startup founders to look into the issues faced by angel investors and could likely come up with a fresh notification on angel tax in a week.

“Have received many suggestions on angel tax issues; small working groups will be formed to suggest changes," said Ramesh Abhishek, Secretary Department for Promotion of Industry and Internal Trade Secretary (DPIIT).

"CBDT and DIPP have committed to coming up with a fresh notification to provide relief on angel tax within a week's time and some of us will be working with them during this period. The objective is to devise a mechanism through which startups can be differentiated from shell companies and get a blanket relief from angel tax," said Sachin Taparia, Founder of LocalCircles, the community media platform that hosts over 35,000 startups and SMEs.

Taparia is a member of the newly-formed committee.

The decision was taken after a round-table that DPIIT and CBDT had with key angel investors and startups on February 4. It was chaired by Abhishek.

This meeting was the outcome of incessant protests by investors in the last few weeks following the government's notification on angel tax on January 16.

Earlier, many startups had also complained of notices they were receiving from the tax department. They were being asked to give an explanation for the funding raised and their valuations.

In the meeting, it was also been decided that the Central Board of Direct Taxes (CBDT) the apex direct tax policy-making body under finance ministry will not take any ‘coercive action’ against startups.

The new norms were expected to soothe the sentiments of the startup ecosystem; however, not many were convinced by the fresh guidelines. The angel investors had been demanding complete scrapping of the angel tax.

While the government had set up a deadline of 45 days to CBDT to approve or reject a startup’s request for tax exemption, only startups certified and recognised by the DIPP were eligible for all the exemptions.

According to official data, there are around 16,000 DIPP- level 1 recognised startups in the country. And as of November, just 91 startups have been approved by the government for availing tax benefits. So this rule leaves behind a majority of the startups in the country.

It is a long drawn process to get a startup certificate from DIPP.

The startups have requested the government to ensure that the Level 1 startups should immediately be exempted from the purview of Section 56(2)(viib) upon the submission of some of the key documents such as audited financials, all monthly payrolls records including name and pan number of all employees etc.

They have also requested to increase the cap of seven years after which a company is no longer recognised as a startup, to 10 years.