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Prelims Syllabus : Economy Mains Syllabus : Indian Economy and issues relating to planning, mobilization, of resources, growth, development and employment.

In News:

  • The government decided to set up a five-member working committee to look into the angel tax issue and come up with guidelines in one week. It also agreed to implement some key changes requested by start-ups regarding the issue.

Explained:

What is Angel Tax?

  • The angel tax applies to unlisted companies that have raised capital through an issue of shares at a price deemed to be in excess of the fair market value of those shares.
  • The excess capital over and above the fair market value is then treated as income and taxed accordingly. As this largely affects angel investments in start-ups, it has been dubbed angel tax.

What is the Issue?

  • According to a January 16 notification, start-ups whose aggregate amount of paid-up share capital and share premium after the proposed issue of share does not exceed Rs. 10 crores are eligible for exemption from the tax. But start-ups want these limits to be lifted.

Outcome:

  • Government agreed to raise this limit to Rs. 25 crores. They also agreed to amend the definition of a start-up to include companies that have been in operation for up to 10 years rather than the previous limit of seven years.
  • On the investor side, the notification had said that the angel investor should have filed income tax returns of at least Rs. 50 lakhs for the year preceding the year in which the investment was made and have a net worth of Rs. 2 crores. This changed attended to be Rs. 25 lakh and Rs. 1 crore, respectively.
  • And government also refused to wholly abolish the angel tax because it may increase the money laundering via shell companies.
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