The Department for Promotion of Industry and Internal Trade (DPI), on 19 February 2019, notified revised conditions to claim exemption from tax under phase fifty-six (2)(vii) of the Income-tax Act, 1961 (ITA).
Section 56(2)(vii) of the ITA levies a tax (angel tax) on percentage top class acquired by way of personal corporations for the difficulty of shares at a price higher than the truthful market fee of the stocks, as computed for tax purposes.
As in step with the 19 February notification, the exemption from angel tax can be available to a startup: (a) which has been diagnosed by using the DPI; (b) whose combination paid-up share capital and proportion top rate after difficulty or proposed problem (apart from investment by way of non-citizens, assignment capital organizations and challenge capital budget, and unique businesses) does not exceed ₹250 million (US$3.Five million); and (c) which has now not invested in any specified assets (together with a constructing or land used for purposes other than its business or for renting or held as a inventory in alternate, loans and advances other than those prolonged inside the everyday direction of business, capital contribution to every other entity, shares and securities and many others.).
For the functions of the notification, an entity shall be considered as a startup: (i) for as much as a period of 10 years from its date of incorporation or registration, if it’s far incorporated as a personal constrained business enterprise or registered as a restrained legal responsibility partnership in India; (ii) if its turnover for any of the economic years on the grounds that incorporation or registration has no longer exceeded `1 billion; (iii) if it’s miles working toward innovation, improvement or development of merchandise or processes or offerings, or if it’s far a scalable enterprise model with an excessive ability for employment technology or wealth creation; and (iv) furnished it turned into not shaped by way of the splitting up or reconstruction of a present business.
An eligible entity wishing to attain recognition as a startup from DPI ought to make a web utility. The application must be observed with the aid of a duplicate of the entity’s certificate of incorporation or registration (as the case may be), together with a write up about the nature of its business, how it’s far operating closer to innovation, improvement or improvement of merchandise or tactics or offerings, or its scalability in phrases of employment technology or wealth advent. The DPI might also, after calling for such documents or facts and making such inquiries as it may deem healthy, recognize the eligible entity or reject the utility by means of imparting reasons.
The exemption shall follow from the date of incorporation of the startup, regardless of the dates on which stocks are issued by it, except for the stocks issued in recognize of which an addition underneath phase 56(2)(vii) of the ITA has been made in an evacuation order earlier than 19 February 2019.
The exemption will be revoked with retrospective impact if the startup invests in any designated belongings before the quiet of 7 years (starting from the give up of the modern day financial 12 months) wherein stocks are issued at a top rate.
In addition to the above, the notification also lays down the technique for obtaining a certificate for the purposes of phase eighty-IAC of the ITA, which offers a 100% tax vacation for 3 consecutive evaluation years for licensed startups deriving profits from eligible corporations.