Indian government finally comes to a decision on Angel Tax, changes definition of startups

• An entity will now be considered a startup for a period of 10 years from the date of incorporation.
  
• The exemption for angel tax for shares issued or proposed has also been hiked to an aggregate limit of ₹25 crore from ₹10 crore.
  
• The exemption will encourage more investments in early-stage funding.

The Indian government has announced a new definition for startups to handle the angel tax issue.

An entity will now be considered a startup for a period of 10 years from the date of its incorporation as opposed to the earlier norm of seven years, according to an official Gazette notification by the government.

Similarly, an entity will continue to be recognised as a start-ups if its turnover for any of the financial years since incorporation and registration has not exceeded ₹100 crore in place of ₹25 crore earlier said an official statement released by the Department for Promotion of Industry and Internal Trade.

In a meeting with industry stakeholders on February 4, the DPIIT had said that the government would come up with a solution for the angel tax issue and no coercive action would be taken against startups that have been issued notices under angel tax. According to a survey done by the IVCA, 73% of startups in India received Angel tax notices.

The exemption for angel tax for shares issued or proposed has also been hiked to an aggregate limit of ₹25 crore from ₹10 crore. “In addition, consideration received by eligible start-ups for shares issued or proposed to be issued to a listed company having a net worth of Rs.100 crore or turnover of at least ₹250 crore will also be exempted,” said the official statement from the DPIIT.

The startups looking for exemption, however, will have to be registered under the DIPP. Till date, 16,171 startups have been recognised by the DIPP, while 129 startups have been funded under the Startup India program.

The exemption will hopefully encourage more investments for early-stage startups in India.

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