There’s little evidence that regulators will be able to solve the feud with the clauses in the I-Tax Act.
BENGALURU: The Central Bureau of Direct Taxes (CBDT) is unlikely to allow startups that have raised money from ‘accredited investors’ to be exempt from Section 56(2)(viib) of the I-T Act, one of the key demands of angel groups and prominent investors in the ongoing feud between the government and the industry.
Investors, in their recent meetings with the departments concerned, had suggested that they should be allowed to self-declare as accredited investors, provided the investor has an income above Rs 50 lakh in the previous financial year and over Rs 2 crore of net worth.
“They (CBDT) are not comfortable with the current proposal of investors self-declaring that they’re accredited investors. While investors have now proposed that Sebi take the responsibility of verifying investors, the understanding of CBDT is that this could be done at a later date as well,” said a person close to the development.
On February 4, DPIIT secretary Ramesh Abhishek had said that the departments would look at bringing out a revised notification to help startups in 4-5 days. While the CBDT has approved all the demands except granting investor accreditation, the DPIIT is still working on changing the definition of startups in its policy, which is taking time.
The person said that the CBDT officials are still open to the idea of defining accredited investors, but it might not make it into the upcoming notification.
The more pressing concern for them right now is provide a blanket exemption to startups from Section 56 if their share premium doesn’t exceed Rs 25 crore and also relief for startups who have already got angel tax notices.
“Investors were pushing for this because it would not only safeguard their investments from the taxman, but also force individual investors to become part of angel groups. There was a clear advantage for them in getting the government to define accredited investors, but right now I think the government should help startups first,” said another person in discussions with CBDT and DPIIT.
A notification from the government with the revised norms is expected to come anytime soon, allowing startups with share premium not exceeding Rs 25 crore to get a blanket exemption from Section 56. This will be based on their submissions of Income Tax Returns and Audited Financials of the previous year, along with a self-declaration of the money raised not being used for laundering purposes.
Categories: Tax news