Responding to a long-standing demand from the industry, the government has relaxed the rules for angel tax exemption for start-ups by making entities incorporated before the current cut-off date of April 2016 eligible for the benefit, provided the total funds raised is not more than ₹10 crore.
However, the April 2016 cut-off date for eligibility for 100 per cent deduction of the profits and gains from income of start-ups for three years remains unchanged, Department of Industrial Policy & Promotion (DIPP) Secretary Ramesh Abhishek said.
In a notification dated April 11, 2018, the government has also given proper legal sanctity to the Inter Ministerial Board (IMB) to consider applications of start-ups for claiming tax incentives, which has also been made more broad-based.
The government’s decision on relaxing the guidelines for angel tax exemption (under Section 56) would come as a relief for many out of the 18 start-ups that have received income tax notices for non-payment of tax.
The DIPP Secretary explained that even if an income tax assessment has been opened in case of a start-up, the IMB certification can be used for exemption of Section 56.
“With the introduction of amendments through this notification, start-ups are likely to have easy access to funding which, in turn, will ensure ease in starting of new businesses, promote start-up eco-system, encourage entrepreneurship leading to more job creation and economic growth in the country,” an official release stated.
Under the new rules, applications for certification of start-ups under Section 56 and Section 80 IAC of the Act will be submitted through an online portal to DIPP. The applications will be considered by IMB for certification.