Budget 2019: Declarations can save Indian startups from angel tax scrutiny

• Finance Minister Nirmala Sitharaman resolved the angel tax issue by saying that the startups and investors who have filed returns will not be scrutinised.
• The startups will also not be required to justify the share market value of their shares.
• The Minister also proposed that this will include category 2 Alternative Investment Funds.

In the Union Budget 2019, Finance Minister Nirmala Sitharaman showed that the Narendra Modi government continues to focus on startups. With regards to the much debated angel tax, the Minister said that the startups and investors who have filed returns will not be scrutinised.

The startups will also not be required to justify the share market value of their shares allocated to market 1 investors. The Minister also proposed that the category will include category 2 Alternative Investment Funds.

A period of exemption for two years, that is until March 31, 2021, shall be given to people on capital gains which have been invested in startups.

Furthermore, e-verification will resolve the issue of identifying the investor and the source of funds. The minister also said that special administrative arrangements will be made for the pending assessments of startups, which also included that an officer without obtaining the approval of the supervisory office shall not pass an assessment.

Till date, 19,655 startups have been recognised by the DIPP.

In February, the Indian government had announced a new definition for startups to handle the angel tax issue. An entity will now be considered a startup for a period of 0 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.