Angel Tax Relief

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

  • The Government has widened the definition of startups to partly address angel tax woes by increasing the time period for such ventures to be treated as startups, increasing the turnover criteria and also raising the tax exemption limit for investments made.


What was the issue?

  • Angel tax is applicable to unlisted companies that have raised capital through sale of shares at a value above their fair market value. This excess capital is treated as income and taxed accordingly. This tax predominantly affects start-ups and the angel investments they attract.

What is start up?

  • According to new definition one that is registered with the government, an entity shall be considered a startup up to 10 years from its date of incorporation instead of the existing period of 7 years, and has a turnover that has not exceeded ₹100 crore over that period.
  • Investments of up to ₹25 crore in an eligible company will be exempt from the angel tax. In addition, investments made by a listed company of a net worth of at least ₹100 crore or a turnover of at least ₹250 crore would also be exempt. Investments made by non-residents will also be exempt.

Registering with government:

  • In order to register with the government as a start-up, the company will also have to make an online application to the Department for Promotion of Industry and Internal Trade (DPIIT) erstwhile DIPP.
  • This application will have to be accompanied by a copy of the Certificate of Incorporation or Registration, a write-up about the nature of the business highlighting how it is working towards “innovation, development or improvement of products or processes or services, or its scalability in terms of employment generation or wealth creation.
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