Why is it in the news?
- The Department for Promotion of Industry and Internal Trade (DPIIT) and the Central Board of Direct Taxes (CBDT) agreed to compile a list of startups eligible for angel tax exemption.
- The list will be based on the startup’s audited financial statements and income tax returns of the previous year.
- The notification is likely be issued in a couple of days.
More about the scheme
- The government also decided to raise the maximum time limit below which a firm would be deemed eligible for angel tax exemption to 10 years from the earlier seven.
- Further, the paid-up share capital threshold below which startups would be eligible for an exemption has been set at Rs.25 crore.
- In cases where the investment exceeds Rs.25 crore, the firms would be eligible for exemption if the angel investors can prove a net worth of Rs.2 crore or more in the previous financial year.
- For investments below Rs.25 crore, no questions would be asked.
- Angel tax usually impacts startups and the angel investments they attract.
- While aimed at curbing money-laundering, the angel tax has also resulted in a large number of genuine startups receiving notices from the IT Department.
What is Angel Tax?
- Angel tax is imposed on the excess share capital raised by an unlisted firm, over and above the fair market value of its shares.
- The excess realisation is treated as income and taxed accordingly(30% of the excess funding).
- The tax was introduced in the 2012 Union Budget by then finance minister to arrest laundering of funds.
- It has come to be called angel tax since it largely impacts angel investments in startups.
Source
The Hindu.