In a notable development for India’s startup ecosystem, companies registered with the Department for Promotion of Industry and Internal Trade (DPIIT) are now exempt from Angel Tax assessment proceedings under the recent Budget 2023 amendments. These amendments, aimed at scrutinizing the valuation of shares issued by unlisted startups to investors, had broadened the scope of the Angel Tax, previously applicable only to domestic investments, to include foreign investments as well. According to the Budget, any excess premium would be categorized as ‘income from sources’ and subjected to a tax rate exceeding 30%. However, DPIIT-registered startups have been excluded from these new norms.
The Central Board of Direct Taxes (CBDT) has issued a circular to provide further clarity to field officers. The circular states that in the event a DPIIT-recognized startup undergoes scrutiny concerning the Angel Tax provision, assessing officers are no longer required to conduct verification. These startups’ contentions on the matter will be accepted without question.
Amit Agarwal, Partner at Nangia & Co., explained the significance of the CBDT circular, stating, “The CBDT circular basically means that startups registered with DPIIT and whose case has been picked up for Angel Tax issues shall not be subject to any Assessment Proceedings, and AO shall be duty-bound to give a clean chit to such startups.”
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This administrative guidance offers a significant advantage to DPIIT-registered startups by eliminating the need for an assessment process related to Angel Tax.
