New Delhi: The government has exempted all registered startups that have received tax demand notices for selling shares at a premium from an anti-evasion provision in the Income Tax Act known as ‘angel tax.’ The move seeks to ensure that genuine entrepreneurs are not affected by the provision that allows the government to demand tax on share premium, treating it as income.
Earlier, the Central Board of Direct Taxes (CBDT) had exempted registered startups from the purview of the angel tax provision except for those that have already received tax demand notices with the intent of granting them relief at the appeals stage. CBDT said on Saturday that it has now been made applicable to those that have already been issued a demand notice for the share premium.
Mint had reported on 8 August that the apex direct tax policy making body has asked its field officers to accept without any verification, in certain cases, the claims of government-registered startups on their eligibility for exemption from angel tax.
CBDT’s Saturday’s statement explained that in addition to this, the government has also decided to extend the relief to those that have received demand notices.
“The Central Government has further decided to…. make it clear that this notification will also be applicable to startup companies where addition (to taxable income) under section 56(2)(viib) (of the Income Tax Act) has been made and the assessee has been recognized by department for promotion of industry and internal trade (DPIIT) and subsequently filed Form No. 2." It also said that a circular to this effect has been issued.
“It is great to see that CBDT has announced relief from section 56(2)viib for startups with pending demand orders," said Sachin Taparia, founder and chairman of LocalCircles, a community platform that advocated relief for startups. This section allows the government to tax share premium in excess of fair value as income. “One can say that with this critical issue past us, startups can now focus on other areas like managing cash flow, raising capital and finding growth," said Taparia.