Startups seek amendment in angel tax notification

Members of the startup community want to meet Commerce and Industry Minister Suresh Prabhu as they seek amendment in the angel tax notification.

The startups have demanded increase in the cap of share premium and change in the definition of startups in the angel tax regulation, among other things.

"The Rs 10 crore limit for share premium to avail exemption be increased to 25 crores. There are many startups in India that venture capital is unable to fund. These include businesses that will help reduce pollution, make clean water available, recycle waste or improve women and child safety. Such startups require significant capital and high net worth Individuals, family trusts and corporates need to be able to fund them," said Sachin Taparia, founder of LocalCircles, the community media platform that hosts over 35,000 startups and SMEs.

The startups have also demanded that the definition of startups be changed. Instead of seven years, a company should qualify as a startup even if it is 10 years old.

"Many startups who started in 2010-11, raised capital in 2015-16 are now faced with a tax notice and cannot even register for becoming a DIPP recognised startup as the window closes at seven year mark. Given how difficult it is in India to raise funds and establishing a business, 10 years is a reasonable time period to be qualified as a startup," he added.

In a salvaging act to appease the startup community, the government on January 16 issued a notification to ease the difficulties faced by angel investors.  However the industry is demanding a lot of clarity on the issue.

The new norms are expected to reduce hassle of the startups as the government has now given a 45 day-deadline to Central Board of Direct Taxes (CBDT) to approve or reject a startup’s request for tax exemption.

Applications for exemption from angel tax will also no longer we required to produce merchant bank certificate or get clearance from inter-ministerial board.