All You Need to Know About ANGEL TAX

The longstanding request of the angel investors to exempt them from the ambit of “Angel Tax’ provision has finally turned into a reality. This was a bane particularly for the startup ecosystem growth.

The Central Board of Direct Taxes (CBDT) has issued a notification dated May 24, 2018 exempting angel investors from the ‘Angel Tax’ ambit subject to the terms and conditions as specified by the Department of Industrial Policy and Procedure (DIPP).which is a boon to startup fraternity and will significantly boost the development prospects of the startup fraternity.

The notification is retrospectively effective from April 11, 2018.

The DIPP notification dated April 11, 2018 has exclusively quantified the following conditions to be satisfied by the startups for availing the ‘Angel Tax’ Exemption:

• The worth of proposed issue of shares by the startup should not exceed INR 10 crore in aggregate the amount of paid up share capital and share premium;

• The eligibility parameters specified in this regard are to be satisfied by the investors/proposed investors interested to subscribe the startup shares; and

• The startup secures a report prepared by merchant banker determining the fair market value of shares in accordance with the Rule 11UA of the Income-tax Rules.

If any company obtainsany consideration from the investor in accordance with approval sanctioned by the Inter Ministerial Board of Certification for issue of shares in excess of the face value of the shares,then the said consideration is exempted from the ambit of Rule 56(2)(viib) of the Income Tax Rules.

Further, a 100% tax exemption will be conferred on an investor whose minimum net worth is INR 2 crore, or an average returned income of over INR 25 lakh in the preceding three financial years.

This notification resolves the longstanding contention issue of startups in relation to Angel tax’, or tax on capital raised by unlisted companies by issuing shares in excess of their ‘fair market value’.

Due to the fear of ‘Angel Tax’, Indian startups had witnessed a significant fall in ‘Angel Funding’.The angel investor fraternity was seeking relaxation of norms to put an end to down trend in ‘Angel Funding’ graph.

A serious implementation of the latest ‘Angel Tax’ modifications will certainly fortify the development prospects of the startup fraternity.



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