Govt set to give some relief to startups on angel tax

DELHI: It looks like the angel tax issue is finally being laid to rest to the satisfaction of startups.
Ramesh Abhishek, secretary in the department of industrial policy & promotion (DIPP), said on Wednesday that if the value of a startup is assessed to be higher (when it receives a funding round) than its assumed fair value, the difference would not be considered as income.
"The notification will be out in the next two weeks. We were in consultation with various angel investors where we realized a lot of things," said Abhishek, addressing a gathering of angel investors and startups at an event organized by LetsVenture, an angel investment platform for startups.
Earlier at the same event, Niti Ayog CEO Amitabh Kant also mentioned that the government is formalizing a solution so that angel investors and entrepreneurs do not have to be bothered by the angel tax issue.
"The I-T (income tax) department came out with a circular which provided little relief. We are in detailed consultation and have virtually found a solution. We are formalizing a few issues and will be out with a circular soon. We will ensure all of you are hand-held and angel investors are not touched in India," Kant said.
All these statements should be music to the ears of startups, many of who have been at the receiving end of the income tax authorities, forcing these fledgling ventures to spend time and resources on appealing against what to them looked like an irrational demand.
Under the tax, introduced in 2012, any investment raised from angel investors above the fair value of a venture as determined by the Central Board of Direct Taxation (CBDT) has to be taxed as income in the hands of the startup. The applicable tax rate is 30%.
Last year, tax officials started sending out notices to a lot of entrepreneurs asking them to pay the tax on angel investments raised by them.
Last week, the CBDT came out with a circular directing tax officials not to take "coercive measures" to recover the outstanding demand. But many criticized this as not dealing with the core issue of the irrationality of the tax itself.