Recognised startups not to face impact of proposed changes in income tax laws: DPIIT secretary
- ByStartupStory | February 3, 2023
A top government official stated on Thursday that proposed revisions to income tax legislation regarding the issuing of shares to foreign organisations or offshore angel investors would have no effect on government-recognized enterprises. However, Anurag Jain, secretary at the Department for Promotion of Industry and Internal Trade (DPIIT), stated that enterprises or startups that are not recognised by DPIIT will be covered by the proposed amendments to Section 56 (2) of the Income Tax Act.
Section 56(2) (viib) states that any sum raised by a startup in excess of its fair market value is considered income from other sources and is taxed at 30%.
This provision was introduced in 2012 as an anti-abuse measure. It is known as the angel tax because of the impact it has on investments made by angel investors in new enterprises. “There is no angel tax on startups, lets be clear about that. Sec 56 (ii) used to have two proviso – one was preferential treatment of foreign players. So that preferential treatment has been done away with…Anybody which is a recognised startup by the DPIIT will not attract angel tax if investment is made into that, be it foreign or domestic,” Jain told reporters here.
He was responding to a query regarding his thoughts on proposed amendments to Section 56. Any startup which gets recognition by the DPIIT, there is no change for that,” he added.
Startups that are not registered with the department, according to Jain, will be subject to the section’s modified restrictions. According to tax experts, the Budget proposes modifying Section 56 of the Income Tax Act to combat tax evasion.
In response to the proposal, Rohinton Sidhwa, Partner at Deloitte India, stated that this part was intended to address a specific practise of evading tax by parking funds in a company at a high premium allegedly to benefit the company’s existing shareholders.
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