The Central Government has given in to the increasing demands for revising the definition and scope of angel tax. An entity shall be considered a startup upto 10 years from its date of incorporation / registration instead of the extant period of 7 years.
Investments into eligible Startups by Non-Residents, Alternate Investment Funds- Category i-registered with SEBI shall also be exempt under Section 56(2)(viib) of Income Tax Act beyond the limit of Rs 25 crores.
Funds from angels are subjected to over 30% tax if it is more than the fair market value. Introduced in Section 56 of the I-T Act in Budget 2012, it explicitly states that companies - from mature private enterprises to small startups – are liable to pay taxes on money invested at capital.A startup will be eligible for exemption if-
- it is a private limited company which is recognized by DPIIT;
- is not investing in building or land appurtenant thereto; land or building, or both, not being a residential house; loans and advances, other than those extended in the ordinary course of business; capital contribution made to any other entity; shares and securities; a motor vehicle, aircraft, yacht or any other mode of transport, the actual cost of which exceeds ten lakh rupees, other than that held by the startup; and jewellery other than that held by the startup as stock-in-trade in the ordinary course of business.
Startups would have to file a duly signed declaration with DPIIT for availing the exemption and it will then be forwarded to the CBDT by the DPIIT.