Pre-2016 startups with up to Rs10-cr angel funding may escape ‘Angel Tax’

Startups incorporated before 2016 that have got up to Rs10 crore in angel funding may not have to pay angel tax despite income tax notices served on some of them, reports quoting senior government officials said on Tuesday.

The changes are expected to come into effect after the Department of Industrial Policy and Promotion (DIPP) makes suitable changes in the regime and notifies the government.

DIPP is also looking at setting up a committee for identifying such startups, reports said, adding that DIPP will take into account enough safeguards before identifying eligible startups.

The Angel tax, introduced in 2012, is levied on capital raised by unlisted companies, which exceeds their fair market value. However, several startups have been raising funds from Angel investors with high valuations. The Income Tax Department has been serving tax notices on such firms, mainly with the intention of preventing conversion of black money into white.

With the latest budget also offering no relief, the startups are looking at policy changes by the DIPP for relief from Angel tax. DIPP has recognised startups that were floated prior to the launch of the Angel Tax and tax issues faced by those firms could be resolved.

Finance secretary Hasmukh Adhia said the tax is an anti-evasion measure and that no adjustment will be made if it is a DIPP-recognised startup.