By Prarthana Mitra
The government of India announced on Friday that enterprises with an initial investment of less than Rs 10 crore (including the funding from angel investors) will be allowed to avail tax concessions. The move is part of a new relief initiative to boost Indian startups, and comes in response to the grievances raised by the startup community, over angel tax provisions.
Here’s what happened:
About 300-400 Indian startups receive funding annually from the Angel List, which is essentially a platform for investors to scout promising entrepreneurs, and provide financial backing to startups, helping entrepreneurs to make something of themselves in the larger competitive industry.
Over the years, startups have made several demands, with regards to exemptions under the Income Tax Act of 1961. The community has particularly voiced concerns over taxation of angel funds, after receiving notices from income tax authorities. According to Section 56 of the I-T Act, if shares issued by a company are priced higher than its market value, the amount received as profit will be charged to tax the company as income obtained from other sources,” the Times of India reported.
As per Friday’s notification, issued by the ministry of commerce and industry, an angel investor buying stakes in a startup should have a minimum net worth of Rs 2 crore or an average income of over Rs 25 lakh over three financial years prior to that.
To reap the fruits of this newly-announced relief, startups will have to firstly get ratified, and certified by an eight-member inter-ministerial board, who will look into applications and claims made for the concessions. The constitution of this board will fall under the purview of the Department of Industrial Policy and Promotion (DIPP).
Why you should care
With the introduction of the amendments yesterday, startups are likely to enjoy a much easier and relaxed access to funding, which is paramount to ensure smooth operations in emerging businesses.
The ministry later issued a statement, acknowledging that this relief program has been in keeping with a vision to promote startup ecosystem, and encourage entrepreneurship, which in turn will lead to more jobs.
The new tax concessions will likely encourage many budding entrepreneurs to start their own businesses or expand their existing businesses, likely creating more new jobs for the masses. The surge in new businesses is also likely to boost the economy.