The Finance Minister in her Budget speech in February 2019 had announced the formation of Startup Cell within the Income Tax Department.This announcement was made after several start up’s received income tax demand notices, popularly known as angel tax.
The income tax department had questioned the valuation of start up’s and wanted to tax part of the capital raised by these companies. This move had raised alarm among start up founders and investors. The Department of Industrial Promotion and Planning (DIPP) had issued notification stating that provisions of angel tax shall not apply to a startup company if the startup fulfills certain conditions and is recognised by the DIPP.
Further, the income tax department issued a notification stating that:
- the angel tax provisions (Section 56(2) (viib) of the Income Tax Act) will not apply to any capital received by a startup company recognised by DIPP.
- the angel tax provisions will not apply to consideration received by a company for issue of shares that exceeds the face value of such shares, if the consideration has been received from a person being a resident or company which fulfills conditions prescribed by DIPP
- where the startup company is selected under “limited scrutiny” or “complete scrutiny” the contention of startup shall be summarily accepted
- where the startup company is selected under “limited scrutiny” or “complete scrutiny” the applicability of Section 56(2)(viib) shall be inquired into by the Assessing Officer only after obtaining approval of the supervising officer
- where the startup company selected for “limited scrutiny” or “complete scrutiny” the applicability of Section 56(2)(viib) shall be inquired into by the Assessing Officer only after obtaining approval of the supervising officer
The Finance minister in her Budget speech had also announced the formation of a Startup Cell to address the grievances of Startup’s. The Income Tax Department has now formally constituted this Cell.
The Cell will work towards redressal of grievances and mitigate tax-related issues in case of Start-up entities with respect to administration of the Income-tax Act, 1961.
Grievances relating to Start-ups may be filed with the O/o Under Secretary, ITA-I, Room No.245A, North Block, New Delhi – 110001 as well as online at email@example.com. The Cell will also be accessible telephonically on 011- 23095479 /23093070 (F).
Start-up entities can approach the Cell for speedy resolution of their grievances. This initiative is the latest amongst the recent initiatives taken by CBDT to further ease the compliance issues pertaining to Start-ups.