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20-Mar2019

Govt increases investment limit for availing income tax concessions by startups

The government has given a major relief to startups by enhancing definition of startups. It has decided to relax angel tax norms for startups, including increasing the investment limit to Rs 25 crore for availing income tax concessions by startups. Currently, startups avail tax concession only if total investment, including funding from angel investors, does not exceed Rs 10 crore. A notification regarding simplifying the process for startups to get exemptions on investments under section 56(2)(viib) of Income Tax Act, 1961, will be issued shortly.

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. Besides, investments by listed companies with a net worth of Rs 100 crore or turnover of Rs 250 crore into an eligible startup shall be exempt from the section 56 (2) (viib) of the Income Tax Act, beyond the Rs 25 crore limit. Also, investments into eligible startups by non-residents, alternate investment funds - category I - shall also be exempt under this section beyond the limit of Rs 25 crore.

A startup shall also be eligible for exemption under Section 56(2)(viib) if it is a private limited company recognised by the department for promotion of industry and internal trade (DPIIT) and is not investing in specified asset classes. Eligible startups only have to file a duly signed self-declaration by with DPIIT for availing exemption. DPIIT shall transmit these declarations to Central Board of Direct Taxes (CBDT). Further, there is no requirement of making any application for exemption under this section and there will be no case-to-case examination of startups for exemption under Section 56(2)(viib) of Income Tax Act.


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