DIPP takes up angel tax notices with revenue department

Department of Industrial Policy and Promotion says the government is committed to 'protecting bona fide investments into startups'.

After several startups received notices from the tax department and amid talk of the return of angel tax, the Department of Industrial Policy and Promotion (DIPP) has taken up the issue with the Department of Revenue (DoR).

A press statement from the DIPP said: “The DIPP, in consultation with the Department of Revenue (DoR), has put in place a mechanism since April 2018 to grant exemption from the provisions of Section 56(2)(viib) of the Income Tax Act to genuine investors in recognised startups. DIPP has again taken up this matter of issue of IT notices with the DoR so that there is no harassment of angel investors or startups. The government is committed to protecting bona fide investments into startups.”

Union Minister Suresh Prabhu in a recent tweet said the commerce and industry ministry would take up the issue of angel tax notices being sent to startups with the finance ministry.

A PTI report, quoting an income tax official, said, “Notices issued on angel tax to startups may be for those that are not recognised by the DIPP.”

In April, the government had given interim relief to startups, allowing them to avail tax concession if the total investment, including funding from angel investors, did not exceed Rs 10 crore, the PTI report said.

Under Section 56 (2) (viib) of the Income Tax (I-T) Act, if a privately held company issues shares at an amount higher than the face value, or the fair market value, the difference between the issue price and fair market price is taxed as income in the hands of the startup.

The IT Department compares the revenue projections that startups give to investors while raising funds with actual performance, and the difference in share value is calculated to levy angel tax.