New Angel Tax Rules


Context:
Government recently proposed in tax rules for investments made by Indian residents in startups, also known as Angel Tax.

Department for Promotion of Industry and Internal Trade (DPIIT) issued notification in April 2018 for easing the norms for providing tax exemption to the Startup companies and further amended the notification recently.

Angel Tax
Angel Tax is a 30% tax that is levied on the funding received by startups from an external investor. However, this 30% tax is levied when startups receive angel funding at a valuation higher than its ‘fair market value’.

It is counted as income to the company and is taxed. It was introduced by in 2012 to fight money laundering. The stated rationale was that bribes and commissions could be disguised as angel investments to escape taxes.

But given the possibility of this section being used to harass genuine startups, it was rarely invoked.

In a notification dated May 24, 2018, the Central Board of Direct Taxes (CBDT) had exempted angel investors from the Angel Tax clause subject to fulfillment of certain terms & conditions, as specified by Department of Industrial Policy & Promotion (DIPP).

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Location: Thiruvananthapuram, Kerala, India

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