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Government finally scraps ‘Angel Tax’ for startups

Department of Industrial Policy and Promotion (DIPP), under the Union Ministry for Commerce and Industry, has finally exempted startups from 'angel tax' if its total investment including funding from angel investors does not exceed Rs10 crore. The angel 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%, because the additional funds were reported as other income. Many startup valuations are far in excess of market valuations as they are based on the promise of the idea and not its immediate worth. In such a case, they would end up losing a chunk of inflow to the tax. Redefining startups in India, the government said that a business entity in India shall be considered as a startup up to a period of seven years from the date of its incorporation or registration (as defined in the Companies Act, 2013 or registered as a partnership firm under Sction 59 of the Partnership Act, 1932 or a limited liability partnership under the Limited Liability Partnership Act, 2008) in India. In biotechnology space, this period will be ten years. The government said that a startup should not exceed turnover of ₹25 crore in any fiscal year since the date of its incorporation. For validation, a startup shall make an online application over the…

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