IT department exempts 120 startups form paying taxes on fund raised through angel investors

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The Income Tax (IT) department has exempted 120 startups from paying taxes on capital raised from angel investors.

The intimation has been sent to the startups in the last few days under a new scheme launched in February 2019. With this income tax authorities ended a major issue faced by new startups due to a anti-evasion provision of Income Tax (IT) Act.

The new notification comes as a sigh of relief for those startups which were asked to share premium which was higher than their fair value. They can now use the new notification from the Central Board of Direct Taxes (CBDT) and can get the benefits of the exemption. And for those cases where assessments have been done and final tax demands are issued, the startups can produce the exemption certificates at the stage of appeals to a higher authority within the tax department.

As per sources, in March about 150 startups have applied for the ‘startup tag’ out of which 120 have got the tag and thus can enjoy the tax benefits and won’t need to pay taxes on funds raised through angel investors. While the remaining will soon get the benefits once their application is corrected and gets approval nod.

Under the new scheme, an entity considered as a startup is eligible for tax benefits (exemption) for up to 10 years from the date of incorporation, earlier it was seven years. The move is expected to encourage wealthy individuals to invest in startups, which receive capital at a premium on account of their innovative business model.

Some started with low physical valuation received large money from their respective angle investors which led startups under the IT department scanner.


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