Angel tax is a tax imposed on difference between premium value of shares and fair market value of shares.Start-ups are set to get relief from angel tax with exemption limit being raised to Rs 50 lakh from Rs 25 lakh for returns on income a year before an investment.
Commerce and Industry Minister Suresh Prabhu has approved a notification pertaining to clause (VII-B) of subsection (2) of section 56 of Income Tax Act to give relief to angel investors in start-ups, according to highly placed sources.Angel tax is a tax imposed on difference between premium value of shares and fair market value of shares.The ambiguity lies in valuation of these premium shares, wherein, tax man sees angel investor valuations higher than fair market values and hence issues show cause notices to these start-ups.The central government decision came after a number of representations were made to Mr Prabhu by start-ups, seeking relief from often ambiguous angel tax demands, sources said, adding step is expected to give a boost to growing sector of start-ups.According to new notification, a start-up, which is recognised by Department of Industrial Policy and Promotion (DIPP), shall be eligible to apply for approval of exemption if following conditions are fulfilled:A) The aggregate amount of paid-up share capital and share premium of start-up after proposed issue of a share, if any, does not exceed Rs 10 crore.B) The investor/proposed investor shall have--1) Returned income of Rs 50 lakh or more for financial year preceding year of investment/proposed investment, and 2) Net worth exceeding Rs 2 crore or amount of investment made/ proposed to be made in start-up, whichever is higher, as on last date of financial year preceding year of investment/proposed investment.The application of recognised start-up shall be transmitted by DIPP to Central Board of Direct Taxes (CBDT) which has been given final mandate to grant approval or rejection to start-up within a period of 45 days for purposes of angel tax exemption.