In a drive to boast and bring clarification on angel tax for the Indian startup, Union Minister Suresh Prabhu said an entity shall be considered a startup upto 10 years from its date of incorporation / registration instead of the existing period of 7 years.
“An entity shall be considered a startup if its turnover for any of the financial years since its incorporation/registration hasn’t exceeded Rs 100 Crore instead of existing Rs 25 crore,” he said.
He also said that the considerations of shares 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.
The minister added that all 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 (FMV). 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.
But with most startups taking years just to break-even, treating part of the hard-won cash that came in from angels as taxable income, even before a company begins to make money seems unwarranted.
A startup will be eligible for exemption if it is a private limited company which is recognized by DPIIT and 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.
Inputs taken from ETRetail.com