Several start-ups have raised concerns on taxation of angel funds under Section 56 of the Income Tax Act, which provides for taxation of funds received by an entity
New Delhi: The commerce and industry ministry has taken up the issue of 'angel tax' notices being sent to startups with the finance ministry, Union minister Suresh Prabhu has said.
Several start-ups have raised concerns on taxation of angel funds under Section 56 of the Income Tax Act, which provides for taxation of funds received by an entity.
"We have taken up the issue," the commerce and industry minister said in a tweet.
He said this in response to a tweet by Chairman of Manipal Global Education TV Mohandas Pai, who has sought "urgent" intervention by the government in the matter.
An income tax official said, "Notices issued on angel tax to start-ups may be for those that are not recognised by the department of industrial policy and promotion (DIPP)".
Earlier in April, the government gave relief to start-ups by allowing them to avail tax concession if total investment including funding from angel investors does not exceed Rs 10 crore.
As per a notification by the commerce and industry ministry, an angel investor picking up stakes in a start-up should have a minimum net worth of Rs 2 crore or should have an average returned the income of over Rs 25 lakh in the preceding three financial years.
Section 56 of the Income Tax Act provides that where a closely held company issues its shares at a price more than its fair market value, the amount received in excess of the fair market value will be charged to tax the company as income from other sources.
Start-ups also enjoy income tax benefit for three out of seven consecutive assessment years.
To avail the concessions, start-ups would have to approach an eight-member inter-ministerial board of certification.
An angel investor is the one who funds a start-up when it is taking baby steps to establish itself in the competitive market.
Normally, about 300-400 start-ups get angel funding in a year.
The government launched the Start-up India initiative in January 2016 to build a strong ecosystem for nurturing innovation and entrepreneurship.
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