In a major relief to startups, the Narendra Modi government has decided to simplify the angel-tax assessment process under which any action against startups will be taken only after approval of a supervisory officer.
In a circular issued on August 10, the Central Board of Direct Taxes (CBDT) has clarified that no verification will be done by an assessing officer if a startup has been recognised by the Department for Promotion of Industry and Internal Trade (DPIIT) and the case is selected under limited scrutiny.
“In case of startup companies recognised by DPIIT which have filed Form No. 2 and whose cases have been selected under scrutiny to examine multiple issues including the issue of section 56(2)(viib), this issue will not be pursued during the assessment proceedings and inquiry on other issues will be carried out by the Assessing Officer only after obtaining approval of the supervisory authority,” an official statement said.
Form 2 deals with the exemption of startups from income tax subject to certain criteria. If a startup is not recognised by the DPIIT, then the inquiry would be carried out after the approval of a supervisory officer.
The circular followed the announcement made by Finance Minister Nirmala Sitharaman in Budget. The Finance Minister had proposed a series of incentives, including a special arrangement for resolution of pending assessments of income tax cases, with a view to encouraging startups.`
“To resolve the so-called ‘angel tax’ issue, the startups and their investors who file requisite declarations and provide information in their returns will not be subjected to any kind of scrutiny in respect of valuations of share premiums,” she had said.
The issue of establishing the identity of the investor and source of his/her funds will be resolved by putting in place a mechanism of e-verification.