In order to provide some relief to startups from infamous 'Angel Tax', Department of Industrial Policy and Promotion (DIPP) is making an amendment where startups incorporated before 2016 that have got up to Rs 10 crore in angel funding won't face the so-called angel tax.

The changes in the regime are being finalised by DIPP and it will soon notify about same, reported Economic Times citing a senior government official.

DIPP will also set up a separate committee for the recognition of such startups so that they get the relief from tax imposed on angel funding they get, atleast for pre-2016 startups.

The new amendment, if brought, will ease the concerns of about 300 startups that received funding from the Angel Investors Network. Startups incorporated after 2016 and recognised under the Startup India policy are spared this tax.

At present, the angel tax rate stands at a whopping 30 percent, which according to Nasscom has resulted in a 53 percent drop in angel funding during the first half of 2017.

Startups and investors were expecting that the government will resolve the issue of angel tax in the this year budget of 2018 however the issue was left out completely.

Thereafter, a new clarification by Finance Secretary Hasmukh Adhia stated that genuine cases of startup valuation as assessed by DIPP will be exempt from paying taxes on angel investments received. However, this will also be applicable only for startups founded before 2016.

Last month, a few entrepreneurs started a petition on Change.Org demanding that angel tax be abolished as it ran against the spirit of the Start-up India programme initiated by Prime Minister Narendra Modi.

At the same time, Nasscom, Indian Angel Networking, TiE Mumbai and a few other startup ecosystem players came together and issued a statement for abolishing angel tax. “The investors proposed solution is in line with the government’s innovative idea of startup certification. They proposed that the government recognise and approve angel investor groups, and startups raising monies from these groups be exempted from Section 56, unleashing faster-growing startups [that] create jobs and contribute to the tax collections,” the statement said.

To recall, in this year budget, it was announced that time for claiming a tax holiday/exemption by eligible startups has been extended till April 1 2021.

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