Angel Tax Exemption to Start-Up

Department for Promotion of Industry and Internal Trade (DPIIT) vide notification dates 19^th February 2019 has eased the application of Angel Tax to start-ups and expanded the definition of Start-ups.

As per the new Notification, an entity will be considered as a Start-ups upto a period of ten years from the date of incorporation and registration in place of the earlier duration of 7 years. Also, an entity will continue to be recognised as a Start-ups, if its turnover for any of the financial years since incorporation and registration has not exceeded Rs.100 crore in place of Rs.25 crore earlier.

EXEMPTION FROM AGEL TAX

A Start-ups will be eligible for exemption under Section 56 (2) (viib) of Income Tax Act, if it is a private limited company recognized by DPIIT and is not investing in any of the following assets:

1. building or land appurtenant thereto, being a residential house, other than that used by the Start-ups for the purposes of renting or held by it as stock-in-trade, in the ordinary course of business;
2. land or building, or both, not being a residential house, other than that occupied by the Start-ups for its business or used by it for purposes of renting or held by it as stock-in trade, in the ordinary course of business;
3. loans and advances, other than loans or advances extended in the ordinary course of business by the Start-ups where the lending of money is substantial part of its business;
4. capital contribution made to any other entity;
5. shares and securities;
6. 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 Start-ups for the purpose of plying, hiring, leasing or as stock-in-trade, in the ordinary course of business
7. jewellary other than that held by the Start-ups as stock-in-trade in the ordinary course of business;
8. any other asset, whether in the nature of capital asset or otherwise, of the nature specified in sub-clauses (iv) to (ix) of clause (d) of Explanation to clause (vii) of sub-section (2) of section 56 of the Act.

ISSUE OF SHARES AT PREMIUM BY STARTUPS

1. Consideration received by eligible Start-ups for shares issued or proposed to be issued shall be exempt up to an aggregate limit of Rs.25 crore.
2. Consideration received by eligible Start-ups for shares issued or proposed to be issued to a listed company having a net worth of Rs.100 crore or turnover of at least Rs.250 crore will also be exempted.
3. The aggregate limit of Rs.25 crore will exclude consideration received by eligible Start- ups for the following classes of persons:

• Non-Residents
• Alternative Investment Funds- Category-I registered with SEBI
• Listed company having a net worth of Rs.100 Crores or turnover of at least Rs. 250 crore provided that its shares are frequently traded as per SEBI (Substantial Acquisition of Shares and Takeovers) Regulations, 2011

COMPLIANCE

Start-ups shall have to file a duly signed declaration with DPIIT for availing exemption.