Effect of Angel Tax on Indian Startup Ecosystem

The Government of India has continuously engaged with all stakeholders to address relevant issues related to the Indian Startup eco-system.

The Department for Promotion of Industry and Internal Trade issued the notification in April 2018 for easing the norms for providing tax exemption to the Startup companies and further amended the notification on 4th February 2019.

As per the notification, an entity is considered as a Startup:

(a) Up to a time of seven years from the date of incorporation on the off chance that it is fused as a private restricted organization or enlisted as an association firm or a constrained obligation organization in India.

(b)Turnover of the entity for any of the financial years since incorporation/ registration has not exceeded Rs. 25 crores

(c) Element is working towards innovation, development or enhancement of items or procedures or administrations.

Given that an element framed by part up or recreation of a current business will not be considered a ‘Startup’.

A Startup which is perceived by DPIIT is qualified to apply for endorsement for the offers as of now issued or proposed to be issued if the accompanying conditions are satisfied

(i) Total measure of paid-up offer capital and offer premium of the startup after the proposed issue of offer, assuming any, does not surpass ten crore rupees.

(ii) The investor or proposed investor shall have —

(a)    returned income of Rs. 50 lakh or more for the financial year preceding the year of investment or proposed investment; and

(b)   total assets surpassing Rs. 2 crore or the measure of speculation made/proposed to be made in the startup.

Given that in the event that the approval is asked for offers as of now issued by the Startup, no application will be made whether appraisal request has been passed by surveying officer for the important money-related year.

The application, accompanied by the documents specified therein, shall be transmitted by DPIIT to CBDT with the necessary documents. CBDT within a period of 45 days from the date of receipt of application from DPIIT may grant approval to the Startup or decline to grant such approval.

The Government has not conducted any survey to assess the adverse effects of angel tax on the Indian startup ecosystem.

Data was given by the Minister of State of Commerce and Industry, C. R. Chaudhary, in written replies in the Rajya Sabha at 6th Feb 2019.