Govt Allows Tax Soap For Startups Raised Money Up To Rs 10-Crore

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New Delhi: The Centre on Friday allowed tax benefits for startups that have raised up to Rs 10 crore from angel investors, including investments made before April 2016 when the new regime kicked in, as it sought to find a solution to the long-pending dispute between investors and tax authorities.
Several startups had received notices for violation of section 56 of the I-T Act for issuing shares beyond what was estimated to be the fair market value. In these situations, the additional premium is added to the income of the company and taxed, raising concerns among investors as well as startups.

To address this concern, the department of industrial policy and promotion (DIPP) has notified new rules, stipulating that a startup can avail of the tax concession if its paid up capital does not exceed Rs 10 crore. Similarly, the investor should either have an average income of Rs 25 lakh or more for the preceding three financial years or the net worth should be Rs 2 crore or more to ensure tax benefits to startups.
Industrial policy and promotion secretary Ramesh Abhishek said the idea is to ensure that genuine investors, who are bearing risk, should not be taxed under section 56. “Earlier there were no provisions for angel investors. Now we have brought that clarity. For the purposes of section 56, there is no restriction on class of investors and eligible startups can receive investment from any person against issue of shares,” he said.

 

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