Centre may relax angel tax norms for start-ups, sets up panel

• The government on Monday decided to set up a five-member working committee to look into the angel tax issue and come up with guidelines in one week.

• It also agreed to implement some key changes requested by start-ups regarding the issue.

Vital Highlights

• The government has set up a five-member working committee to look into the angel tax issue and come up with guidelines.

• Startups, who rely heavily on this funding, have raised concerns over levying taxes on angel funds under Section 56 of the Income Tax Act.

• Introduced by Finance Minister in 2012 under the Finance Act 2012, it is currently pegged at 30.9%.

• The government has refused to scrap the tax as it fears misuse for money-laundering by shell companies.

• Government has recently amended the definition of start up to raise (a) age of company from 7 to 10 years and (b) funding above 25 crores as against 10 crores earlier.

About Angel tax

• Angel funds refers to a money pool created by high net worth individuals or companies (generally called as angel investors), for investing in business startups.

• They invest at very early-stage of businesses where other institutional investors such as venture capital funds or private equity funds hesitate to invest.

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Mains Paper 3: Economy | Effects of Liberalization On The Economy

Prelims level: Angel Tax

Mains level: Interventions required by the government to diversify India’s startup’s financing

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