Startups raised the issue last week in a meeting with the Finance Ministry and the Department for Promotion of Industry and Internal Trade. Apart from this, he expressed concern over the move to bring foreign investors under the ambit of angel tax.
Image Credit source: ANI
The startup industry has been lobbying the Finance Ministry to abolish or reduce the limit of Rs 25 crore under which it is exempted from angel tax. The industry says that only a few percent of startups will be able to meet this limit. The central government is seeking inputs from all the beneficiaries and a detailed clarification on angel tax is expected in the next few days. Startups raised the issue last week in a meeting with the Finance Ministry and the Department for Promotion of Industry and Internal Trade. Apart from this, he expressed concern over the move to bring foreign investors under the ambit of angel tax.
10 crore was the limit till 2019
Under section 56(2)(vii)(b) of the Income Tax Act, if a closely held company issues shares at a price higher than the fair price value. Whose calculation is done according to the given method. TDS is levied on the difference that comes out after that. This tax is not levied until the investment does not exceed Rs 25 crore. This limit was last changed in 2019. At that time this limit was Rs 10 crore.
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Till when angel tax is not applicable
This was done so that money laundering could be prevented. But this tax has greatly affected startups and angel investors. Startups registered with DPIIT are exempted from this tax as long as the total investment including funding from angel investors does not exceed Rs 25 crore. The industry argues that the limit is very low, input cost and salary inflation have increased. This limit is a huge barrier for startups registered under DPIIT.
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The Rs 25 crore limit did not include shares issued by non-residents, ventures registered as Category I Alternate Investment Funds (AIFs), specified companies. The Finance Bill of 2023 removed this exemption and proposed to bring foreign investors under the ambit of angel tax, which till now was applicable only to Indian residents and funds not registered as AIFs. The startup ecosystem and investors have expressed concern as foreign investment remains a major source of funding.
