In a move that is expected to provide a boost to new entrepreneurs, the government has allowed start-ups in the country to avail tax concession on investments of up to Rs 10 crore from investors, including angel investors Thursday.
The exemption from levy of income tax on share premium will be received by eligible start-ups under section 56 of the Act.
According to commerce and industry ministry's statement, an angel investor who is picking up shares in a start-up with a minimum net worth of Rs 2 crore, or an average returned income of over Rs 25 lakh in the preceding three financial years, would be eligible for 100 percent tax exemption on investments made into start-ups above fair market value.
"With the introduction of amendments through this notification, startups are likely to have easy access to funding which in turn will ensure ease in starting of new businesses, promote startup eco-system, encourage entrepreneurship leading to more job creation and economic growth in the country," the ministry of commerce and industry said in a statement.
Earlier several start-ups had received notices from tax authorities for violation of section 56 of the Income Tax Act, which provides for taxation of funds received by an entity.
"It's a welcome move as startups are always under pressure to deliver the promise of their startup. The most important moment for any startup is to build the MVP and start invoicing. Angel investors generally help at this phase. Angel investors will now be more open to invest without having to lose money on premium valuation" Anil Prem D'Souza, founder and CEO, Simpliance told International Business Times India.
"If India wishes to emerge as the foremost destination for start-ups, all stakeholders, of which the government is the largest, will need to create an ecosystem that is radically supportive in policy and implementation. Of the 8765 start-ups recognized 88 have been certified for tax exemption (GoI Press Release April 6th, 2018). While we appreciate the intent of this policy, we believe that the ecosystem needs really high-conviction moves to unlock the phenomenal potential - moves that fully reflect this intent both in policy and in execution" Mukesh Sharma, co-founder and managing director of Menterra told International Business Times India.
As part of this initiative, department of industrial policy and promotion has issued gazette notification constituting a broad-based Inter-Ministerial Board (IMB) to consider applications of start-ups for the claim of incentives of the Income Tax Act 1961. To avail tax discounts, the start-ups would have to approach an inter-ministerial certification board.