277 startups secure all-clear from Income Tax department
April, 12th 2019
As many as 277 startups have got an all clear certificate from income tax department, shielding them from the what has been popularly dubbed as the angel tax, as the government gets cracking with the implementation of the new startup framework. A total of 302 entities had applied for it, said a government official privy to the development.
The move comes after the Central Board of Direct Taxes (CBDT) and the Department for Promotion of Industry and Internal Trade (DPIIT) amended the startup framework in February to ring-fence them from ‘angel tax’.
Startups can apply to the DPIIT for approval and recognition under the new framework, which is then vetted by the CBDT.
“A total of 302 people have applied…. 277 have been sent an intimation or acknowledgement…. Our team has started informing the 25 about the discrepancy and all discrepancies will be shared with them by today so that they can reapply,” the official said.
Startups can submit this certificate to income tax authorities locally and get relief. The CBDT has already directed its field officials to promptly act in these cases.
The latest changes to the framework include a widened definition of startups and raised caps for investments that would not be scrutinised for angel tax.
Now, entities that have been in operation for up to ten years from date of incorporation or registration instead of the current seven years can be classified as start-ups.
Afirm can be a categorised as a startup even if its turnover for any of the financial years since incorporation has not exceeded Rs 100 crore instead of the existing cap of Rs 25 crore. Investment limit of Rs 10 crore has been raised to Rs 25 crore.
Besides, investments by listed companies with a net worth of Rs 100 crore or turnover of Rs 250 crore into an eligible startup will be exempt from section 56 (2) of the Income Tax Act, beyond the Rs 25 crore limit.
The section 56 (2) (vii)(b) of the Income Tax Act provides that if a closely held company issues its shares at a price more than its fair market value, the amount received in excess of the fair market value will be taxed as income from other sources. The provision was introduced in 2012 by the then finance minister Pranab Mukherjee as an anti-laundering measure.