In order to further dispel the fears surrounding the Angel Tax for startups, the Central Board of Direct Taxes (CBDT) has constituted a startup cell to redress grievances and address various tax related issues. It also has the provision to file these grievances online. The body also reiterated the measures it has taken to allow young companies to flourish without the hinderance of unjust taxation.
Union Finance Minister Nirmala Sitharaman had recently categorically stated that Angel Tax will not be applicable to startups. This was in continuation to the announcements which were made in the Union Budget in July.
The CBDT also reiterated that outstanding income-tax demand relating to additions made under Section 56(2)(viib) – the provision of Angel Tax - would not be pursued and no communication in respect of outstanding demand would be made with the startup entity. Other income-tax demand of the startups would not be pursued unless the demand was confirmed by Income Tax Appellate Tribunal (ITAT).
The CBDT had come out with a series of notifications starting from February this year to reduce the apprehension among the startups on Angel Tax. On the time limit for completion of pending assessments, it said all cases involving limited scrutiny were to be completed preferably by September 30, 2019 and the other cases were to be disposed on priority by October 31, 2019.
The issue of Angel Tax had become the biggest thorn for the Indian startup ecosystem as tax demands made by the I-T department for raising funds was based on the valuation.
Now many industry observers believe that the Angel Tax is a buried issue as no new notifications were being raised by the I-T department.
The CBDT also clarified Angel Tax would also not be applicable in respect of assessment made before February 19, 2019 if a recognised startup had filed declaration in Form No. 2. The timelines for the disposal of appeals are also specified.
(Edited by Evelyn Ratnakumar)