The Central Board of Direct Taxes (CBDT) has amended the provisions of the ‘Angel Tax’ under Section 56(2)(viib) of the Income Tax Act, 1961, to exclude or exempt start-ups recognized by the DPIIT, vide Notification 30/2023 dated May 24, 2023, effective April 1, 2023.
CBDT Income Tax Notification 30/2023 dated 24/05/2023: DPIIT Recognized Startups excluded from Angel Tax Provisions
What is Angel Tax?
Angel Tax is an anti-abuse provision that applies when a Closely Held Company (CHC) issues shares at a premium and receives consideration in excess of the fair market value (FMV). Prior to the amendment, the Angel Tax applied only to shares issued to residents. The Finance Act 2023 extended the provisions to include shares issued by a CHC to non-resident investors.
DPIIT Recognition for StartUps
Start-ups recognized by the Department for Promotion of Industry and Internal Trade (DPIIT) are eligible for tax benefits and easier compliance. To be eligible for DPIIT recognition, a start-up must meet certain criteria, such as being incorporated as a private limited company, a registered partnership firm or a limited liability partnership, having an annual turnover not exceeding Rs 100 crores and working towards the development or improvement of a product, process or service with a scalable business model.
No Impact on StartUps: Amendments in Angel Tax Provisions
The Angel Tax provisions in the Finance Bill 2023 will not impact start-ups in India, as long as they are registered with DPIIT. The amendment to the Angel Tax provisions is expected to provide relief to start-ups and attract more investments from both resident and non-resident investors.
Conclusion
The amendment to the Angel Tax provisions by CBDT is a welcome relief for start-ups recognized by DPIIT. The amendment will provide relief to start-ups and attract more investments from both resident and non-resident investors.
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