Angel Tax: CBDT directs officials not to take coercive action against startups

Startups will have wait for some more time before any concrete implementation measures are taken by CBDT and DPIIT as a follow-up to the relief measures already announced by the government on the Angel Tax issue.

Startups directly impacted by Angel Tax can look forward for further relief as the Central Board of Direct Taxes (CBDT) has directed its officials not to take any coercive action against firms who have already received notices. It has also asked them to expedite all cases where startups have filed appeals, on a priority basis.

In a written communication sent to Chief Commissioners of Income Tax (CCIT) in various zones yesterday, the CBDT said, “I am directed to request you to kindly instruct the concerned authorities in your zone to identify cases pertaining to them and to ensure that no coercive action is taken in these cases. I am further directed to request you to kindly ensure that appeals pending in these cases, if any, are disposed of on priority.”

The development comes soon after the government recently passed a fresh directive where it exempted startups from the ambit of Angel Tax up to certain limit along with other reform measures and these come with retrospective effect.

Though the decision of the government was welcomed by the startup ecosystem, they were worried about the Angel Tax demand which was already received by several of them. Sachin Taparia, Founder and Chairman, Local Circles, a social media platform, said, “There is no reprieve so far for several startups that have received demand orders but if their appeals are handled in a fast track manner and the new startup India angel tax exemption certificate is considered in the appeals process, it would be very helpful to them.”

Sachin added, “We have shared the same with Akhilesh Ranjan, Member CBDT, yesterday.”

Even after the government notified new regulations to provide startups relief from Angel Tax, there has not been much movement on the ground for various reasons. Startups require certification from the DPIIT to claim exemption from the purview of Angel Tax, but the process is yet to begin.

Similarly, those startups which have received tax demand notices and filed appeals will have to wait for some time before they could get any relief as the I-T Department has sought more time to dispose of these cases. According to Sachin,

“The negative has been that there has been no action till now on the ground but the positive is that there is commitment from the government departments.”

Startups have been issued notices under two sections of the Income Tax Act, 1961: Section 56(2)(vii)(b) which deals with valuations of funding raised as income, and Section 68 which deals with unexplained cash credit.

LocalCircles has also suggested to CBDT if they could mark startups exempted from angel tax in their systems so if there is a share premium event at such startups no scrutiny notice is generated and the issue is addressed at the root level.