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Much Awaited Tax Exemption for Startups Is Here

Central Board of Direct Taxes (CBDT) Has Good News

CBDT has just announced that it will no longer impose tax on the investments that startups receive from angel investors. This was a long-awaited decision from which the Indian startups stand to gain a lot. It is a part of the tax holiday incentives that PM Narendra Modi had announced in January this year.

What Does It Mean?

Any business requires a steady flow of investment in its growth period. Since startup trend has hit India, there has been an increase in investment flow as well. Numerous angel investors have been fueling in money to these startups so that they can grow. As per Section 56(2) (viib) of the India Tax Law, any investment received from such investors is treated as taxable income for startups. With CBDT’s latest announcement, the startups would no longer need to pay this tax.

The Road Ahead

Now that the startups have been exempted from the tax liability of Section 56(2)(viib), they can make full use of the funds, even if they are coming from parties not registered as Venture Capital Funds. The industry has long-awaited this exempt on angel tax. Startups can now offer shares even above the fair price value.

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Takeaways:-

  • Startups no longer need to pay taxes on funds received from angel investors, even if they are not registered as Venture Capital Funds.
  • Startups will be exempted from Section 56(2)(viib) of the India Tax Law.
  • These startups can now offer shares above the fair price mark.
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