At a time while the Government has been worrying to afford a burden for innovation and entrepreneurship, the rest in angel tax policies as presented by way of Department of Promotion for Industry and Internal Trade (DPIIT) may although now not be what the startups had been resisting after all.
1) DPIIT notification said correction to the definition of a startup to contain any employer “working towards innovation, development or promotion of products or tactics or services, or if it’s miles a scalable enterprise model with an excess potential of employment technology or wealth advent.”
An extension inside the tenure from seven to ten years contributed its turnover for anyone economic 12 months has no longer passed Rs 100 crores (previously Rs 25 crore)
Primarily, extra startups are excused from paying angel tax, notably after the confinement of funding exemption has been elevated from Rs 10 crore to Rs 25 crore.
This will deliver the bulk of angel investments, tax-loose for startups. But this step doesn’t do plenty to eliminate the paperwork startups must cope with. They might be expected to document an announcement with DPIIT to be able to then be forwarded to the Central Board of Direct Taxes (CBDT).
This distributes may not also be beneficial for startups experimenting with new technologies and answers which may have a protracted gestation term and are capital in depth.
Additionally, this prerequisite appears somewhat beneficial until the taxman doesn’t try to trap angel investments underneath the ambit of Section 68 of the I-T Act.
2) DPIIT notification stated that to be qualified for exemption underneath Section 56(2) (7b), a startup has to implement a self-announcement to DPIIT undertaking not to invest in stable assets, transport motors above Rs 10 lakh, loans and advances, capital contribution to other entities, and a few various exact belongings together with shares and securities and jewelry, except in the regular path of its biz.
Some of the above exemption conditions can restrict using price range by making matters complex for startups. For instance, startups can’t invest in shares and securities. With maximum ventures tending to promptly park the cash they get hold of in debt mutual price range, it’d motivate them to unsuitable for the exemption.
Further, companies are restricted from making capital contributions to any entity, because of this that a startup can not have subsidiaries, which makes it hard for startups with distant places hands or operating in regulated areas which include fin-tech and e-commerce, wherein having a set of agencies isn’t just acceptable however necessary to conform with regulatory requirements.
3) DPIIT notification studiously avoids addressing Section 68, that has been invoked to initiate motion in opposition to startups. While Section 68 of the IT Act relates to a startup attracting angel tax legal responsibility in case it isn’t able to give an explanation for the source of capital or investment it gets, the question remains why those taxes survive inside the primary sector.
When entrepreneurs must go through a tough method for advancing capital, any taxes on the capital raise is likely to kill the startup ecosystem.