Despite the government's decision to exempt startups from the 'angel tax' on investors, many companies may not benefit from this because of a caveat: Only firms certified as startups under new government norms will be exempt from 'Angel tax' and are eligible for other tax-related benefits, according to The Economic Times. In February, the government said that startups will have to be certified by an inter-ministerial panel, and they will have to fulfill the following criteria: - Firm should be not be more than a five years old. - Should have an annual turnover of less than Rs 25 crore. - Must work towards innovation, development, deployment or commercialization of new products, processes or services driven by technology or intellectual property. The report pointed out that there are not many startups which have been certified. A VCCircle report says that only 70-80 startups have applied for certification and that only 1-2% of them will get the certification as it is difficult for companies to demonstrate innovation in their product or services. It also added that the decision would not apply to retrospective investments. The tax The tax was introduced in the Finance Bill of 2012 by then finance minister Pranab Mukherjee. Funds which were raised by an unlisted company through issuing shares were covered under this tax to the extent the amount is in excess of the fair market value. The companies would attract a corporate tax of 30% as the additional funds were reported as other income. Many startup valuations are far in excess of market valuations as they are…
