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Angel tax norms to be relaxed
Why is it in the news ?
- The Centre has decided to set up a five-member working committee to look into the angel tax issue and come up with guidelines in one week.
- It also agreed to implement some key changes requested by start-ups regarding the issue.
More in the news
What is Angel Tax?
- Angel tax is a term used to refer to the income tax payable on capital raised by unlisted companies via issue of shares where the share price is seen in excess of the fair market value of the shares sold.
- 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.
Exemption:
- According to recent notification, start-ups whose aggregate amount of paid-up share capital and share premium after the proposed issue of share does not exceed Rs.10 crore are eligible for exemption from the tax.
- For the exemption, startups were also required to get approval from an inter-ministerial board and a certificate of valuation by a merchant banker.
- According to the notification, the exemption would apply only when the angel investor had a minimum net worth of Rs 2 crore, or an average returned income of over Rs.25 lakh in the preceding three financial years.
What is the Issue?
- Despite the exemption notification, there are a host of challenges that startups are still faced with, in order to get this exemption.
- The issue of angel tax had come into focus after some startups in Bengaluru and Mumbai got notices from the income tax department.
The Changes likely:
- Officials representing the government agreed to raise this limit to Rs.25 crore from Rs.10 crore.
- They also agreed to amend the definition of a start-up to include companies that have been in operation for up to 10 years rather than the previous limit of seven years.
Source
The Hindu, ET.