India exempts small startups from angel tax to promote growth and jobs

The government has raised the investment threshold to 250 million rupees, up from 100 million rupees, on which tax exemptions can be availed.

In a strategic move, India eased tax pressures for a new genre of businesses and exempt them from an “angel tax” on funds they have raised, in an attempt to boost investments and jobs.

As a result, startups who have an annual turnover of up to $14 million (one billion rupees) will be exempted from the “angel tax”.

The move comes midst thousands of small business groups writing to Indian Prime Minister Narendra Modi saying they had received income tax notices in the last few months to pay angel tax of around 30% plus a penalty on funds raised in the last seven years.

Significantly, the government also raised the investment threshold to 250 million rupees from 100 million rupees, on which tax exemptions would be available.

The move is an attempt to bolster job creation in the country.

Under the new rules, ventures that have raised up to 250 million rupees and have registered with the Department for Promotion of Industry and Internal Trade will be in a position to avail the tax exemption.

In a statement, the government said, the investment limit for startups to get income tax exemption has been raised to 1 billion rupees, up from 250 million rupees.

As per a statement from Suresh Prabhu, India’s commerce and industry minister, businesses would be considered as a startup for a period of up to ten years, up from 7 years, after incorporation and registration.

Earlier, businesses had complained after receiving income tax notices that demanded that they pay angel tax on the “premium” paid by investors, which essentially is the equity infused into the business in excess of “fair valuation”.

This had forced many startups to close shop.

“Today’s announcement is a big relief for small companies,” said Sachin Taparia, founder of Local Circles, a network of about 30,000 businesses.

The government however stated, companies will be barred from investing fund they have raised in residential buildings, shares and securities, jewelry or luxury cars.

Welcoming the government’s positive move, Nakul Saxena, of iSpirit, said it has eased up the process for startups to claim tax exemption and simultaneously expanded the scope of new ventures able to access tax exemptions.

He went on to add, “It now remains to be seen if these measures are implemented with the same spirit as they were formed”.

($1 = 71.5230 Indian rupees)

Advertisements


Categories: Creativity, Economy & Finance, Entrepreneurship, HR & Organization, Regulations & Legal, Strategy

Tags: , , , , , , , , , , , , , , , , , , , , , , , , , ,

Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out /  Change )

Google photo

You are commenting using your Google account. Log Out /  Change )

Twitter picture

You are commenting using your Twitter account. Log Out /  Change )

Facebook photo

You are commenting using your Facebook account. Log Out /  Change )

Connecting to %s

This site uses Akismet to reduce spam. Learn how your comment data is processed.

%d bloggers like this: