The centre is considering a proposal to give exemption up to a certain limit on angel investments of government-certified start-ups on a retrospective basis.
Angel investments are the earliest equity investments made in startup companies. “A number of startups, who came into existence before April 1, 2016, have started receiving income tax notices in last few months. The DIPP (Department of Industrial Policy and Promotion) is currently discussing with the income tax department if it is possible to give complete tax exemption, up to a certain limit of angel investment, to government-certified startups. The notification regarding this may come by the end of this month,” said a senior government official.
Under Section 56 of the Income Tax Act, the part of the angel investment, which is deemed as excess to the “fair value” of the startup, can be certified as “income from other sources”, and therefore, such excess income can be taxed at approximately 30 per cent. This tax is termed as ‘angel tax’. Startups — incorporated after April 1, 2016, and are recognised under the ‘Startup India policy’ of the central government — are already spared the angel tax.
Since January 2016, only 88 startups have been certified by the inter-ministerial board (IMB) for claiming income tax exemptions. “The government is also considering a revamp of IMB. The startups — which came into existence before 2016 — may get a chance for IMB certification. Also, only IMB-certified startups may get income tax exemptions on retrospective basis. All these issues are being discussed,” the official added.