Amid concerns being raised by budding entrepreneurs on angel tax, the commerce and industry ministry said on Thursday that startups need to seek the exemption from an inter-ministerial board set up for the purpose.
Ramesh Abhishek, Secretary in the department of industrial policy and promotion (DIPP), said that the ministry is already taking up the matter with the department of revenue.
Several startups have raised concerns on taxation of angel funds under Section 56 of the Income Tax Act, which provides for taxation of funds received by an entity.
He said that the purpose of section 56(2)(viib) of Income Tax Act was to prevent money laundering, and investments made by AIF (alternate investment funds) are exempted from this provision.
“For HNIs and other type of individual investors, there was no mechanism earlier. So, DIPP and income tax department put in place a mechanism and set up an inter ministerial board.
“People who would like investments to be exempted from this particular provision under the law, have to apply,” he told reporters.
The new board was set up in April.
“We would like more and more startups to apply for tax exemption. If specific issues and problems are pointed out to us by startups, we will take that up with the concerned department,” the secretary said, adding since April only 2 startups have applied for exemption to the board.
“We have a mechanism for exempting genuine investments in startups. So, people should use that mechanism. Everything is online, they should take advantage,” he said.
Startups also enjoy income tax benefit for three out of seven consecutive assessment years.