During a session in the parliament, Piyush Goyal, the minister of commerce and industry said that the Central Board of Direct Taxes (CBDT) has freed 702 startups of Income Tax.
He said that, as of June 21, Department for Promotion of Industry and Internal Trade (DPIIT) had received 944 applications for angel tax exemption.
Earlier, a notice issued by DPIIT on February 19, 2019, stated, “All the startups are allowed to receive angel tax exemption regardless of their share premium values given that the aggregate amount of paid-up share capital and share premium of the startup after issue or proposed issue of shares, if any, does not exceed, ₹25 crore.”
Besides, the Income Tax Act says that if a privately 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 taxed as income from other sources.
Due to this provision, in November 2018, the Ministry of Consumer Affairs (MCA) issued notices to more than 2,000 startups that had raised money since 2013.
The notices were mostly sent to the startups whose valuations had fallen after the first round of fundraising.
At the time, 70 startups and iSPIRT foundation reached out to the Prime Minister saying that startups require significant capital early on and that raising equity funding via angel investors is the only option for them, which can only be raised at a premium for various reasons.
After much protests and discussions, the CBDT and DPIIT had issued the February notification.
Moreover, at the time of notification, it was also widely discussed that a few pain points for startups remain the same.