Angel Tax Exemption under Notification dated 16th January 2019

What is Angel Tax?

As per section 56(2)(b)(viib) of the Income Tax Act 1969 if a private company or unlisted public company issue shares at premium the premium over and above fair market value of the share is considered as other income and appropriate tax rate apply to such income.

The section provides some exemption to angel tax if investment is from;

venture capital undertaking from a venture capital company or a venture capital fund
company from a class or classes of persons as may be notified by the Central Government in this behalf.

Fair market value of the shares shall be the value—(i) as may be determined in accordance with such method as may be prescribed or (ii) as may be substantiated by the company to the satisfaction of the Assessing Officer, based on the value, on the date of issue of shares, of its assets, including intangible assets being goodwill, know-how, patents, copyrights, trademarks, licences, franchises or any other business or commercial rights of similar nature, whichever is higher;

Notification dated 16th January 2019.

Department of Industrial Policy and Promotion issued notification for exemption of start-ups from angel tax. The requirements of the notification is as given below.

The applicant must be a registered start-up with DIPP under notification DIPP April 11, 2018.
aggregate amount of paid up share capital and share premium of the start-up after the proposed issue of share, if any, does not exceed ten crore rupees;
The investor or proposed investor shall have a returned income of Rs.50 lakhs or more of the financial year preceding the year of investment/proposed investment and net worth exceeding Rs. 2 crore or the amount of investment made/proposed to be made in the startup, whichever is higher, as on the last date of the financial year preceding the year of investment/proposed investment.
The application to be made in Form 2 to DIPP with supporting documents.

In case approval is required for the shares already issued, no application is required if assessment order issued by assessing officer.