In order to promote startup funding, the central government is considering increasing the tax exemption for Angel Investors, in addition to the listed companies, relatives of the founders and some ‘recognized investors’. They may be allowed to fund up to Rs 50 crore possibly in startups. Under current provisions, they get tax rebates on funding up to Rs 10 crore.
Also, these investors will be allowed to claim tax deduction during the ten year period instead of the current 7 years. Right now the startups are allowed to claim tax deduction for three consecutive years within seven years. Many companies and experts have been saying this as a constraint because no startup in this period is available in profits.
The Department of Industrial and Industrial Promotion (DPIIT) and Revenue Department are considering the concerns of Angel Taxes. When an unlisted company raises funds by selling shares to an entity at a higher value than the market value, then the amount of fund is charged on Angel tax.
Sources of the finance ministry said that DPIIT has proposed the investment declaration to keep startups away from Shell companies. The flow of investment in startups is of any question to the tax department, it is being arranged. The startups do not have securities, artwork or precious coins of ownership holders, warehouses, etc. (real estate), expensive cars, jewelery and gold, listed or unlisted companies, and they have collected audited financial and tax-tax returns from last year. They are going to get these benefits (Green Channel Benefits).
One source said, “All the startups registered in DPIIT will be given the benefit of one level tax exemption. What is the level, what is to be decided. He said that new rules could be revealed by next week. Sources say that the government wants to encourage startups because it is focusing on generating employment.
However, the tax department is concerned about ‘accredited investors’, but it is in favor of giving tax benefits like Angel Investors to listed Indian companies with turnover of over Rs 100 crore or fixed net worth. Sources said that the amount of funding to be kept under the purview of tax exemption is to be considered. Similarly, those who funded the startups of relatives may be given similar tax rebates.