In a letter addressed to the Ministry of Finance and Ministry of Commerce, multiple industry bodies sought urgent intervention on the issue of angel tax. The letter dated 7 January 2019 was addressed by IT industry body NASSCOM and The IndUS Entrepreneurs (TiE), a non-profit supporting startups, Indian Private Equity and Venture Capital Association (IVCA) and Indian Angel Network (IAN). It urged the ministries to ‘abolish’ the tax.
The industry bodies had earlier sought representation to the concerned departments to address the issue. The Central Bureau for Direct Taxes (CBDT) had issued a letter to all Principal Chief Commissioners of Income Tax that ‘no coercive measure to recover the outstanding demand will be taken’ on 6 February 2018 and 24 December 2018.
The representation sought immediate action to dispose pending assessment and appeals, waive deposits for appeal matters, remove the subjective condition and ease the approval of startups by the inter-ministerial boards. The representation also highlighted that valuation certification either by a merchant banker or a chartered accountant should be held valid as long as they comply with global standards. The letter also suggested that PAN card and valuation certificates be used by the assessment officer to ensure the genuineness and legitimacy of the transaction.
Angel tax is a popular term used to refer to the Section 56 (2) of Income Tax Act under which money raised by private companies through equity and angel investment is classified as ‘income from other sources’ and is taxed at the rate of 30%.
In April, the Department of Industrial Policy and Promotion (DIPP) had notified an amendment to the ruling on angel tax which exempted startups incorporated before 2016 and who have raised less than Rs 10 crore in an angel round. The ruling also required the startups to register with an inter-ministerial board which meets once in three to four weeks. So far, only two startups have registered with the DIPP.