Angel tax is a tax on the excess valuation of a startup when it raises funds from domestic investors. However, as per the Finance Act 2021, startups with a total investment of up to INR 50 crore and a turnover of up to INR 250 crore are exempt from Angel Tax.
To claim this exemption, a startup needs to fulfil the following conditions:
The startup should be recognized by the Department for Promotion of Industry and Internal Trade (DPIIT) under the Startup India scheme.
The total amount of share capital and share premium of the startup after the issue of shares should not exceed INR 25 crores.
The startup should submit a self-declaration to the DPIIT, along with the documents mentioned in the notification issued by the CBDT.
The startup should not invest in any of the following assets: land, building or both; shares, securities or stock; or loans and advances.
It is important to note that this exemption is only applicable to investments made by domestic investors. Therefore, if a startup receives funding from foreign investors, it may still be subject to Angel Tax.
In summary, to claim Angel Tax exemption, a startup needs to be recognized by the DPIIT, fulfil the investment and turnover criteria, and submit a self-declaration along with the relevant documents.
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Compliance Calendar LLP is Recognised as Startup by DIPP Under Ministry of Commerce & Industry, Government of India
Post getting recognition a Startup may apply for Angel Tax Exemption.
Eligibility Criteria for Tax Exemption under Section 56 of the Income Tax Act:
The entity should be a DPIIT recognized Startup
Aggregate amount of paid up share capital and share premium of the Startup after the proposed issue of share, if any, does not exceed INR 25 Crore.
On August 23, 2019, the minister also announced that startups registered with the Department for Promotion of Industry and Internal Trade (DPIIT) would be exempted from paying Angel Tax.
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