Startups floated before 2016 may get breather from angel tax
The government has also reportedly asked tax officials not to pursue cases against startups
India could shield startups floated prior to 2016 from the angel tax to boost entrepreneurship in the country, said a report.
According to the ET report, the Finance Ministry has started discussions with the Department of Industrial Policy and Promotion (DIPP) to shield startups floated prior to 2016 from the angel tax.
The government has also reportedly asked tax officials not to pursue cases against startups.
"We had (earlier) said we will recognise startups only after 2016. We have sent a proposal to the DIPP. If DIPP agrees, then we will not make any adjustment for startups set up before 2016," Finance Secretary Hasmukh Adhia was quoted as saying.
"Somebody has to examine it if it is a genuine case of valuation... If they are recognised by the DIPP, we will accept," Adhia added.
Introduced in 2012, the angel tax is applicable on the capital raised by unlisted companies from any individual against an issue of shares in excess of the fair market value.
The law says since excess amount is akin to 'income from other sources', therefore, should be taxed.
The tax is not levied on startups recognised by the DIPP under the Startup India policy announced last year. Adhia reportedly said that tax authorities were not aggressively pursuing cases against startups.
"On the pre-2016 cases where assessing officers have given notices, we have said no one will proceed further till the first appeal is decided at appellate level," he said.,
The Central Board of Direct Taxes (CBDT) chairman has accordingly instructed assessing field officers against precipitate recovery action. "So, let it meet with judicial scrutiny," Adhia said.
He also said it was wrong to characterise the levy as an angel tax.
"We take valuation both on book value as well as discounted cash flow, certified by chartered accountant... If you get a valuation which is higher than DCF value, then we tax it. This is not an angel tax — this is an anti-evasion measure for us," he said. "But we have said that no adjustment will be made if it is a DIPP-recognised startup."
Venture capital funds and non-residents can pay more than the book value and will not face tax.