The Department for Promotion of Industry and Internal Trade (DPIIT) is working on a definition of 'accredited investors', who could be provided tax incentives for investments in startups.

DPITT (earlier known as DIPP), which works under the commerce and industry ministry, has already prepared a draft definition and is now seeking views of stakeholders.

These accredited investors, which can include trusts, individuals, family member of a startup and unlisted companies, may get exemption from angel tax under Section 56(2)(viib) of Income Tax Act, 1961, beyond the Rs 25 crore limit, said the officials of DPITT.

According to Wikipedia, an accredited or sophisticated investor is an investor with a special status under financial regulation laws. The definition of an accredited investor, and the consequences of being classified as one, vary between countries. Generally, accredited investors include high-net-worth individuals (HNIs), banks, financial institutions and other large corporations, who have access to complex and higher-risk investments such as venture capital, hedge funds and angel investments.

At present, startups in India gets full angel tax concession on investments up to Rs 25 crore and investors with a specified limit of turnover and net worth -- listed companies, non-residents and alternate investments funds category I like venture capital funds -- also get an exemption from angel tax on investment beyond Rs 25 crore.

Introduced in 2012 as an anti-abuse measure, Section 56(2)(viib) of Income Tax Act (commonly known as Angel Tax) provides that the amount raised by a startup in excess of its fair market value would be deemed as income from other sources and would be taxed at 30%.

According to media reports, government is seeking views of stakeholders on the definition of accredited investors. They will be exempted from section 56 (2) (viib). We will define it as a separate category like listed companies

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