Startup norms eased, angel tax ceiling Rs 25 cr

New Delhi, February 19

Giving a major relief to budding entrepreneurs, the government today relaxed the definition of startups and allowed them to avail full angel tax concession on investments worth up to Rs 25 crore.

Earlier, a startup was allowed to avail tax concession only if the total investment, including funding from angel investors, did not exceed Rs 10 crore.

“Consideration received by eligible startups for shares issued or proposed to be issued by all investors shall be exempt up to an aggregate limit of Rs 25 crore,” Commerce and Industry Minister Suresh Prabhu said in a series of tweets.

The development assumes significance as several startups have claimed to receive angel tax notices, impacting their businesses. Various startups have raised concerns on notices sent to them under Section 56(2)(viib) of the Income Tax Act, 1961, to pay taxes on angel funds received by them.

Besides, investments by listed companies with a net worth of Rs 100 crore or turnover of Rs 250 crore into an eligible startup would also be exempted from Section 56(2)(viib), beyond the Rs 25 crore limit. — PTI

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. It is called angel tax since it largely impacts angel investments in startups.

Definition relaxed

An entity shall be considered startup if its turnover for any of the financial year, since its incorporation or registration, has not exceeded Rs 100 crore, instead of the existing Rs 25 crore.