July 2019
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Business News
Forget about taxman; focus on business: CBDT to start-ups
New Delhi, Jul 6 (PTI) The country's start-up community should now not worry about taxmen and concentrate on their businesses as concerns related to 'angel tax' have been "sorted out", the CBDT chief said Saturday.

Central Board of Direct Taxes (CBDT) Chairman P C Mody told PTI in an interview that all "legacy issues" related to start-ups will be resolved through a consultative process and under a strict supervision of senior officers of the tax authority.

In her maiden Budget speech on Friday, Union Finance Minister Nirmala Sitharaman proposed a number of measures to resolve the problems being faced by start-ups with regard to their initial funding, called angel tax, their certification and verification of investors.

The CBDT boss said, "I am very happy to say that all issues which were there with the DIPP... we have had extensive deliberations between both the departments and we have resolved all issues related to start-ups."

The Department of Industrial Policy and Promotion (DIPP) is now called DPIIT (Department for Promotion of Industry and Internal Trade DPIIT).

"The issues resolved are with regard to the definition of start-ups, with regard to the issue of valuation of shares and with regard to sources of funds," Mody said.

The DPIIT, under the commerce and industry ministry, deals with foreign direct investment and issues related to start-ups.

"Now, I think everything has been sorted out and there should not be any cause of concern for the start-ups," Mody said.

"As the head of the tax family, I can definitely assure the start-ups that there would not be any occasion for them to agitate or have any misgivings. They can just concentrate on doing their business," the Chairman said.

The Central Board of Direct Taxes is the policy-making body for the Income-Tax Department.

Asked what are the "administrative arrangements" that his department will make in this context, as announced by Sitharaman, Mody said this statement of the finance minister was in respect of "legacy issues".

"Like in certain cases where scrutiny (of a start-up) had already commenced or the notices were already issued, there we propose to have dedicated officers carrying out the scrutiny and that also would be done in consultation and prior approval of supervisory officers," he said.

"So, when there is involvement of senior officers and there is more of a consultative process, I do not anticipate that there would be any issue left that would trouble or agitate start-ups," the CBDT chief said.

Sitharaman has stated that it will be ensured that no inquiry or verification in such cases be carried out by the assessing officer without obtaining approval of the supervisory officer.

Several start-ups have been complaining and making representations to the government for about a year with regard to they receiving I-T notices. They claimed it was getting difficult for them to operate when the taxman was breathing down their neck.

Sitharaman, in her Budget speech, said start-ups in India are taking firm roots and their continued growth needs to be encouraged.

"To resolve the so-called 'angel tax' issue, the start-ups and their investors who file requisite declarations and provide information in their returns will not be subjected to any kind of scrutiny in respect of valuations of share premiums," she said.

The issue of establishing the identity of the investor and source of his/her funds will be resolved by putting in place a mechanism for e-verification, she said.

With this, funds raised by start-ups will not require any kind of scrutiny from the I-T department, the minister said.

An investor who funds a start-up when it is setting up its business in the competitive market is termed as an 'angel investor' as that entity acts as an angel to the budding and innovative business idea.

Normally, about 300-400 start-ups get angel funding in a year. Their investment in a unit ranges between Rs 15 lakh to Rs 4 crore.

The finance minister, to help the start-ups, also proposed to relax certain conditions for carrying forward and set-off of losses in the case of start-ups.

After claims being made by several start-ups that they were receiving tax notices under section 56(2)(viib) of the Income Tax Act, 1961, to pay taxes on angel funds received by them, the DPIIT in consultation with the CBDT sat down to resolve the issue.

Section 56(2)(viib) of the I-T Act provides that the amount raised by a start-up in excess of its fair market value would be deemed as income from other sources and taxed at 30 per cent.

Touted as an anti-abuse measure, this section was introduced in 2012. It is dubbed as angel tax due to its impact on investments made by angel investors in start-up ventures.

The government launched the 'Startup India' initiative on January 16, 2016, to build a strong ecosystem for nurturing innovation and entrepreneurship. It also provided them with certain tax benefits and other incentives.

So far, 19,665 start-ups are recognised by the DPIIT and over 540 have received exemption from angel tax so far.

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