Budget 2018-19 shielded startups with up to INR 10 crore funding, floated before 2016 from Angel tax to encourage entrepreneurship in the country.
Arun Jaitley, the Finance Minister has also asked tax officials not to pursue cases against startups.
“We had said we will recognize startups only after 2016. We have sent a proposal to the DIPP. If they agree, then we will not make any adjustment for startups set up prior to 2016”- said Hasmush Adhia, finance secretary.
Angel Tax levied on equity infusion at a value more than fair market value. The extra amount is treated as income from other sources and hence, taxed.
It will ease the concerns of about 300 startups that received funding from the Angel Investors Network. “We will have adequate safeguards that would be taken into account when a startup is examined for recognition,” said the official.
Former finance minister Pranab Mukherjee introduced the Angel tax in the finance bill of 2012 to track down money laundering through high premiums on the share. it is applicable to the capital raised by unlisted companies from any individual against an issue of shares in excess of the fair market value.
The law reasons that this excess amount is income from other sources and should be taxed under Section 56 (II) of the Income Tax Act.
It is indeed a good step to motivate new and young entrepreneurs and cultivate the self-employment culture.