Angel Tax has been a contentious subject among the startup community.

Finance Minister Nirmala Sitharaman on Friday said that startups and their investors who file requisite declarations and provide information in their returns will not be subjected to any kind of angel tax scrutiny, in a measure seen as a relief for new ventures announced as part of the budget.

"The issue of establishing identity of the investor and source of his funds will be resolved by putting in place a mechanism of e-verification. With this, funds raised by start-ups will not require any kind of scrutiny from the Income Tax Department," said Ms Sitharaman, while presenting her first Union Budget.

Introduced in 2012 by the then United Progressive Alliance (UPA) government, the tax on early funding dubbed "angel tax" received widespread criticism from the start-ups community as some of them began receiving notices for non-payment of dues over the last year.

"Start-ups in India are taking firm roots and their continued growth needs to be encouraged," said the finance minister, adding they will not be subjected to any kind of scrutiny in respect of valuations of share premiums.

In addition, she said, special administrative arrangements would be made by the Central Board of Direct Taxes (CBDT) for pending assessments of start-ups and redressal of their grievances.

"It will be ensured that no inquiry or verification in such cases can be carried out by the Assessing Officer without obtaining approval of his supervisory officer," she said.

At present, startups are not required to justify fair market value of their shares issued to certain investors including Category-I Alternative Investment Funds (AIF).

"I propose to extend this benefit to Category-II Alternative Investment Funds also. Therefore, valuation of shares issued to these funds shall be beyond the scope of income tax scrutiny," said Ms Sitharaman.

She proposed relaxing some of the conditions for carry-forward and set off of losses in the case of startups.

The finance minister also announced to a television programme within the government-run DD bouquet of channels exclusively for start-ups.

"This shall serve as a platform for promoting start-ups, discussing issues affecting their growth, matchmaking with venture capitalists and for funding and tax planning. This channel shall be designed and executed by start-ups themselves," said Ms Sitharaman.

Announcing more incentives for start-ups, she said: "The condition for carry forward and set off of losses in cases of eligible start-ups is proposed to be relaxed enabling them to carry forward their losses on satisfaction of any one of the two conditions, i.e. continuity of 51 per cent shareholding/voting power or continuity of 100 per cent of original shareholders.

"Further, the provision which allows exemption of capital gains from sale of residential property on investment of net consideration in equity shares of eligible start-up shall be extended by two years".

The condition of minimum holding of 50 per cent of share capital or voting rights in the start-up was proposed to be relaxed to 25 per cent.

(With inputs from IANS)