Govt. Redefines Startup, Angel Tax Can Be Reduced: 9 Things You Should Know

Reduction of Angel Tax has been a long-pending demand from entrepreneurs

Startup definitions in India changed
Startup definitions in India changed

Govt. of India has once again redefined the definition of a startup.

This has been done to encourage entrepreneurship, and to make it easier for smaller and medium scale startups to avail Govt. benefits.

Besides, Govt. has also hinted that the draconian Angel Tax on startups receiving their first funding can be reduced.

Here are 9 things you should know:

  • Age Of Startup: As per notifications issued by the Department for Promotion of Industry and Internal Trade, a new business would be considered a startup upto 10 years from the date of registration. Earlier, the period was 7 years, and before that, 5 years.
  • Value Of Startup: Since its registration, if a business has not crossed total turnover of Rs 100 crore, it will be considered a startup. Earlier, this limit was Rs 25 crore. Hence, the new rules for defining a startup will now cover more startups, thereby benefiting more entrepreneurs.
  • Tax Rebate: Now, the juicy part. As per the new rules, a startup would be eligible to get tax rebate under Section 56 of the Income Tax Act, if:

                               – (Real Estate Investment) The company hasn’t invested in any land or property other than their own office/factory

                             – (Loans) The company hasn’t received any Loans and advances, other than any loan or advance used for the business operations.

                          – (Vehicle) The company hasn’t purchased any motor vehicle, aircraft, yacht or any other mode of transport, whose cost exceeds Rs 10 lakh, other than any transport vehicle used for business operations

                        -(Jewellery) The company hasn’t invested in any jewellery, other than what required for business operations

  • (Exemptions) Rs 25 crore ceiling for defining a startup will still hold true for few exceptions, such as: Non-Resident Indians; Alternative Investment Funds- Category-I registered with SEBI; In case any company’s shares having net-worth of Rs 100 crore or turnover of Rs 250 crore are traded in SEBI (Substantial Acquisition of Shares and Takeovers) Regulations, 2011.
  • Angel Tax Will Be Reduced: The Department for Promotion of Industry and Internal Trade (DPIIT) and CBDT officials have met, and discussed the issues raised by startups when it comes to Angel Tax. As per reports, a Working Group has been formed, which comprises of members from Indian Private Equity and Venture Capital Association (IVCA), Indian Angel Network, iSPIRT, and LocalCircles, besides DPIIT and Income tax Dept. India’s Minister of Commerce and Industry, Civil Aviation, Suresh Prabhu has informed that very soon, a new notification will be issued in regard to the Angel Tax. It is expected that the Working Group will meet and decide how much reduction in Angel tax can be given to boost startup fundings in India. The steps will be taken under section 56(2)(viib) of Income Tax Act, 1961. Right now, 30.9% Angel Tax is charged from startups raising their first, Angel funds.

We will keep you updated, as more details come in.

Sources: 1, 2, 3,

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