New Delhi: The government on Friday proposed a host of incentives, including a special arrangement for resolution of pending assessments of income tax cases, with a view to encouraging start-ups.
Finance Minister Nirmala Sitharaman in her Budget speech said that start-ups in India are taking firm roots and their continued growth needs to be encouraged.
"To resolve the so-called 'angel tax' issue, the start-ups and their investors who file requisite declarations and provide information in their returns will not be subjected to any kind of scrutiny in respect of valuations of share premiums," she said.
The issue of establishing the identity of the investor and source of his/her funds will be resolved by putting in place a mechanism of e-verification.
With this, funds raised by start-ups will not require any kind of scrutiny from the Income Tax Department, she said.
She also said that special administrative arrangements would be made by the Central Board of Direct Taxes (CBDT) for pending assessments of start-ups and redressal of their grievances.
"It will be ensured that no inquiry or verification in such cases can be carried out by the Assessing Officer without obtaining approval of his supervisory officer," Sitharaman said.
At present, start-ups are not required to justify the fair market value of their shares issued to certain investors including Category-I Alternative Investment Funds (AIF).
Read more:Key takeaways from Finance Minister Nirmala Sitharaman's maiden Budget
"I propose to extend this benefit to Category-II AIFs also. Therefore, the valuation of shares issued to these funds shall be beyond the scope of income tax scrutiny," the minister said.
Investments made by these funds would be exempted from section 56(2)(viib) of the Income-tax Act.
An angel investor puts funds in a startup when it is setting up its business in the competitive market. Normally, about 300-400 startups get angel funding in a year. Their investment in a unit ranges between Rs 15 lakh and Rs 4 crore.
Giving a major relief to budding entrepreneurs, the government in February relaxed the definition of start-ups and allowed them to avail full angel tax concession on investments of up to Rs 25 crore.
After claims being made by several start-ups that they were receiving tax notices under section 56(2)(viib) of the Income Tax Act, 1961, to pay taxes on angel funds received by them, the Department for Promotion of Industry and Internal Trade (DPIIT) in consultations with CBDT resolved the issue.