Centre raises investment limit to let startups avail angel tax sops

New Delhi: Giving major relief to budding entrepreneurs, the government on Tuesday relaxed the definition of startups, and allowed them to avail full angel tax concession on investments worth up to Rs 25 crore. Earlier, a startup was allowed to avail tax concession only if total investment, including funding from angel investors, did not exceed Rs 10 crore. 

"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," Commerce and Industry Minister Suresh Prabhu said in a series of tweets.The development assumes significance as several startups have claimed to receive angel tax notices, impacting their businesses. Various startups have raised concerns on notices sent to them under the section 56(2)(viib) of Income Tax Act, 1961, to pay taxes on angel funds received by them. 

The minister said that a notification regarding simplifying the process for startups to get exemptions on investments under section 56(2)(viib) of Income Tax Act will be issued on Tuesday by the Department for Promotion of Industry and Internal Trade (DPIIT). To provide these tax concessions, the department has relaxed the definition of startups. Now "an entity shall be considered as startup if its turnover for any of the financial year, since its incorporation or registration, has not exceeded Rs 100 crore instead of the existing Rs 25 crore," he said.
 
Besides, investments by listed companies with a net worth of Rs 100 crore or turnover of Rs 250 crore into an eligible startup would also be exempted from the Section 56(2)(viib), beyond the Rs 25 crore limit.  "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," he added. 

Also, investments into eligible startups by non-residents, alternate investment funds - category I - shall also be exempt under this section beyond the limit of Rs 25 crores. Further, an entrepreneur will also be eligible for exemption if it is a private limited company recognised by the DPIIT and is not investing in specified asset classes. However, for being eligible for exemption under Section 56(2)(viib), a startup should not be investing in immovable property, transport vehicles above Rs 10 Lakh, loans and advances, capital contribution to other entities and some other assets except in the ordinary course of its business. 

To avail these concessions, eligible startups will only have to file a duly signed self-declaration with the DPIIT for availing exemption. The department would then transmit these declarations to Central Board of Direct Taxes (CBDT). Further, there is no requirement of making any application for exemption under this section and there will be no case-to-case examination of startups.