New Delhi: Bowing to sustained pressure from start-ups and venture capital funds over the so-called angel tax, the government on Tuesday eased tax norms for new businesses in a bid to boost investment and job creation.
The angel tax is levied on start-ups that have received equity infusion in excess of the fair valuation, with the premium being paid by investors as their income. It was introduced in the 2012-13 Budget by the then finance minister Pranab Mukherjee to curb money laundering .
An entity will now be considered a start-up for 10 years from its date of incorporation and registration as compared to seven years earlier, which will allow it to avail tax benefits for a longer period. The change in definition will also see firms with up to Rs 100-crore annual turnover to be considered a start-up as compared to Rs 25 crore earlier.
Industry experts claimed that considering the uproar from the start-up community on the alleged levy of angel tax by the Central Board of Direct Taxes (CBDT) on certain start-ups, the recent reforms were announced by the DPIIT to enable start-ups to get exemptions on investments under Section 56(2)(viib) of the Income Tax Act, 1961.
“At present, an investor needs to have an average returned income of Rs 50 lakh for the financial year preceding the date of tax filings for availing the benefits of angel tax exemptions. This may be raised further,” a DPIIT official said.