CBDT notifies tax exemption on investments above fair market rate for startups CBDT notifies tax exemption on investments above fair market rate for startups Chartered Accountant CA ICAI Chartered Accountants CA ICAI CAinINDIA ICAI Announcements Accounting Standards CA News ICAI Students ICAI Members Case Laws CPT IPCC Final ICAI Course CA Course ICAI Forum CA Question Papers ICAI Study Material

« Direct Tax »


CBDT allows AMCs to directly manage offshore funds out of India
Taxpayers Beware! Specifications in ITR Forms to make it difficult for assessees to stay indifferent
Penalties for Late Filing of Income Tax Returns
CBDT again defers GST Reporting in Tax Audit Report
I-T officers to fast track disposal of appeal cases
Indian residents can get credit of taxes paid outside country while filing ITR
CBDT claims increase on tax data that suggests blip in e-filings
Procedure, format and standards for issuance of certificate for tax deducted at source in Part B of Form No. 16 in accordance with the provisions of section 203 of the Income-tax Act, 1961 read with the Rule 31 of the Income-tax Rules, 1962 through TRACES
Know All About Different ITR Forms and Important Due Dates
CBDT gives I-T commissioners 3-month deadline to clear pending cases
CBDT rejects report on decline in income tax e-filing


« CBDT eases TDS claims rules for non-resident investors...	CBDT relaxes rules for TDS claims by non-resident companies... »
CBDT notifies tax exemption on investments above fair market rate for startups

June, 29th 2016
In a major incentive, startups can now issue shares to investors at higher than fair value without worrying about tax consequences. The Central Board of Direct Taxes (CBDT) has notified the much awaited tax exemption on investments above fair market rate for startups. "The exemption provided to startups from the 'rigour' of section 56(2)(viib) of Income Tax Act has been long awaited," Amit Maheshwari, Partner Ashok Maheshwary and Associates LLP, said. The effect of the CBDT's notification is that in case a startup gets investment from resident angel investors, family offices or funds which were not registered as venture capital funds, it will not be taxed even if the investment is made in excess to the fair value. "It has been a long standing industry demand to abolish this Angel tax," Maheshwari said. A startup is a company in which the public are not "substantially interested" and conforms to certain conditions as prescribed by the Department of Industrial Policy and Promotion (DIPP) in February this year. Under Indian tax law, if an Indian company receives share subscription amount from an Indian resident which exceeds the fair value of shares, then the excess amount is taxed as income of the Indian company, said Rajesh H Gandhi, Partner, Deloitte Haskins and Sells LLP. "The notification now exempts startups from this rigorous provision. This is a welcome relaxation and would ensure that startups can issue shares to investors at higher than fair value without worrying about any tax consequences," Gandhi said. A similar exemption already exists for Venture Capital Funds (VCFs). Maheshwari said this Angel tax still poses threat to earlier investments which could be perceived as being overvalued in light of the declining valuations globally and in India. Last week, the DIPP has launched a portal and mobile app through which startups can gather all latest updates on various notifications, circulars issued by various departments and different funding agencies. In January, Prime Minister Narendra Modi had unveiled a slew of incentives to boost startup businesses, offering them a tax holiday and inspector raj-free regime for three years, capital gains tax exemption and Rs 10,000 crore corpus to fund them.