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The Central Board of Direct Taxes (CBDT) has exempted all Startups that have received tax notices for selling their shares at a premium from a provision in the Income Tax Act known as the ‘angel tax.’ This move seeks to state that the genuine entrepreneurs will not be affected by the provision, which allows the government to demand tax on share premium, treating it as income.
The Central Board of Direct Taxes exempted registered startups from the angel tax provision except for those who have already received the tax demand notices with the intent of granting them the relief at the appeal stage. CBDT said that it had been made applicable to those who have already been issued a demand notice for share premium.
The Mint had reported on 8 August that the apex direct tax policy body had asked its officers to accept without verification, in some cases, the claims of government recognized startups on their eligibility criteria for exemption from angel tax.
CBDT’s statement explains that the government has decided to extend their relief to those that had received demand notices.
“The Central Government made it clear that this notification will also apply to startup companies besides under section 56(2)(viib) has been made and has been recognized by the department for the promotion of industry and internal trade (DPIIT).
It also issued a circular to this effect. “It is great to see that CBDT announced relief from section 56(2)viib for startups which are with pending demand orders,” said Sachin, the chairman of Local Circles. These sections allow the government to tax share premium overvalue. “One can ensure that with this critical issue, the startups can now truly focus on some other areas like managing cash flow, capital raising and finding growth,” said Sachin Taparia.