{"id":1957,"date":"2019-08-25T16:03:48","date_gmt":"2019-08-25T16:03:48","guid":{"rendered":"https:\/\/www.ixambee.com\/blog\/?p=1957"},"modified":"2023-02-27T12:28:18","modified_gmt":"2023-02-27T06:58:18","slug":"what-is-angel-tax","status":"publish","type":"post","link":"https:\/\/blog.ixambee.com\/what-is-angel-tax","title":{"rendered":"Did You Know: What is Angel Tax? | RBI Grade B 2021"},"content":{"rendered":"

In good news for the start-ups, the Income Tax Department has given an exemption to start-ups from angel tax even on earlier assessment orders, subject to certain riders.<\/p>\n

So what is Angle tax and what was the row all about? Let\u2019s understand<\/em><\/p>\n

Meaning<\/u><\/strong><\/p>\n

The angel tax is an income tax payable on the capital raised by an unlisted firm through the issue of shares over and above their fair market value. The excess realisation (i.e. over and above the fair market value) in the capital raised is treated as income and taxed.<\/p>\n

For example<\/strong>, if an unlisted company raised Rs.10 crore and the fair market value should be Rs.8 crore, the excess Rs.2 crore is treated as income for the unlisted company and therefore liable for taxation. This tax on Rs.2 crore is termed as Angel tax as this capital is usually invested by Angel investor in start-up companies.<\/p>\n

Angel tax is applicable only in case the investor is a resident Indian<\/strong>. This means, any investment made by a foreign angel investor or by a VC fund will not be subject to angel tax.<\/p>\n

 <\/u><\/strong><\/p>\n

Scope for Angel Tax <\/u><\/strong><\/p>\n

In order to promote entrepreneurship and start-ups, the government widened the scope of exemption from angel tax as follows:<\/p>\n\n\n\n\n\n
 <\/u><\/td>\nEarlier <\/u><\/strong><\/td>\nNew <\/u><\/strong><\/td>\n<\/tr>\n
Definition of start-ups<\/td>\nAn entity up to 7 years from date of incorporation<\/td>\n\u00b7         An entity up to 10 years<\/strong> from date of incorporation<\/td>\n<\/tr>\n
Exemption from Angel Tax<\/td>\nUnlisted start-ups having a funding cap up to Rs.10 crore<\/td>\n\u00b7         Unlisted start-ups having a funding cap up to Rs.25 crore<\/strong><\/p>\n

\u00b7         If shares are issued by eligible start-ups to listed firms having a  net worth above Rs.100 crore or an annual turnover of or above Rs.250 crore<\/td>\n<\/tr>\n<\/tbody>\n<\/table>\n

 <\/u><\/strong><\/p>\n

Recent Contention <\/u><\/strong><\/p>\n

These new measures provided protection from future income tax notices, but the clarity on the fate of start-ups that had already come under the department\u2019s radar because of the earlier provisions was missing. The Central Board of Direct Taxes (CBDT) said that those start-ups which had already received tax demand notices may be granted relief at the appeals stage.<\/p>\n

The result of contention<\/u><\/strong><\/p>\n