Following a series of appeals by aggrieved start-ups and investors, the Indian government’s minister for Commerce & Industry, Suresh Prabhu, has cleared proposals for easing the requirements for ‘angel tax’ exemption.

The government has issued a gazette notification announcing major changes, which includes a new expanded definition of startups, eased rules for investors and a one-time submissions of documents by startups to avail ‘angel tax’.

The development comes after hundreds of startups and investors were hounded by the ‘angel tax’ orders. People then appealed to the Prime Minister to scrap the said tax, arguing that this distress in the ecosystem could “derail the entire Start-up India movement”.

However, the government has declined the demand of the start-up community to do away with the tax. The reason cited was shell companies using start-ups to park black money. All start-ups registered and recognised by the Department for Promotion of Industry and Internal Trade (DPIIT) will be eligible for this exemption.

As per the new definition, an entity shall be considered a startup up to 10 years from its date of incorporation/registration instead of the existing period of 7 years. Further, it added that “an entity shall be considered a startup if its turnover for any of the financial years since its incorporation/registration hasn’t exceeded Rs 100 crore instead of the existing Rs 25 crore.”

The minister has also added that all investments into eligible Startups by Non-Residents, Alternate Investment Funds- Category I registered with SEBI shall also be exempt under Section 56(2)(viib) of Income Tax Act beyond the limit of Rs 25 crores. 

Further, there is no requirement of making any application for exemption under this section and there will be no case-to-case examination of startups for exemption under Section 56(2)(viib) of Income Tax Act.

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