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 comes out with clarification on MAT for Ind AS companies
No penalty for late ITR this year but here are 4 important reasons to file it in time
12% growth in income tax collection
CBDT gameplan to enhance TDS collection
Don't curry political favours for transfers, CBDT tells taxmen
CBDT: GST not to be added for TDS computation
Five interest incomes you are likely to forget to include in your tax return
GST not to be added for TDS computation
GST not to be added for TDS computation
Income Tax Return (ITR) Filing: Common Mistakes That Could Get You A Tax Notice
Income Tax department asks tax practitioners to register entities separately


« 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.