"Now a firm can be a startup even if its turnover for any of the financial years since its incorporation hasn't exceeded Rs 100 crore instead of the existing cap of ₹ 25 crore", according to an official release circulated by the Commerce & Industry Ministry.
Further, investments into eligible startups by non-residents, alternate investment funds (AIF)-category I -shall also be exempted under this section beyond the limit of Rs 25 crore.
The definition of startups has been enhanced to an entity which has been in operation for up to ten years from its date of incorporation or registration, instead of the current seven years.
"In addition, consideration received by eligible start-ups for shares issued or proposed to be issued to a listed company having a net worth of Rs.100 crore or turnover of at least ₹250 crore will also be exempted", said the official statement from the DPIIT.
In a move expected to provide relief to and boost investments into startups in India, the government has chose to simplify the process for them to get exemptions under the Income Tax Act. These asset classes include immovable property, transport vehicles worth more than Rs 10 lakh, loans and advances, capital contribution to other entities, shares and securities and jewellery other than that held by the startup as stock-in-trade in the ordinary course of business. DPIIT will communicate these declarations to CBDT.
The development also assumes significance as several start-ups had claimed to receive angel tax notices, impacting their businesses. "This is a seminal move for angel investing..." she said.
Basically, they say that eligible startups only have to file duly signed self-declaration with the DIPP for availing the exemptions.
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"The changes will unshackle angel investing and bring in domestic monies for start-up", Padmaja Ruparel, co-founder of the IAN, said.
Touted as an anti-abuse measure, this section was introduced in 2012. The excess realisation will be treated as income and taxed at 30 per cent.
Prabhu told reporters the higher Rs 25 crore threshold aims to cover nearly all angel investments as most listed companies will now able to invest in startups without angel tax.
"The stated exemptions may provide much-needed relief to the relatively larger-sized startups who may have been required to pay tax on premiums received on share subscription", said Vasudevan of Lakshmikumaran & Sridharan Attorneys.
"Angel tax had begun to dampen the enthusiasm of investors and start-ups. Today's announcement will unleash the next wave of entrepreneurship.it will transform India's economy, generate millions of jobs".
Rakesh Nangia, managing partner, Nangia Advisors, said: "Exemption granted to large listed companies will encourage start-ups seek funding from such listed companies".
The documents will be validated by the DPIIT and then the CBDT will set up a mechanism through which such recognised start-ups do not get notices for angel tax, according to sources.