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- The Central Board of Direct Taxes(CBDT) has issued a circular on angel taxes on start ups.
- The circular has instructed income tax officers that registered start up companies that have already been selected for verification under the angel tax provision will not be scrutinised.
- Further,even unregistered companies have been given relief with the assessing officer being allowed to scrutinise them only after getting permission from his superior officer.
- This development comes after finance minister in the budget had said that startups 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.
- Angel Tax is a 30% tax that is levied on the funding received by startups from an Angel investor.However,this 30% tax is levied when startups receive angel funding at a valuation higher than its ‘fair market value’.It is counted as income to the company and is taxed.
- Section 56(2)(vii)(b) deals with the taxation of share premiums received in excess of the fair market value and has been used in the past to serve demand notices to startups over the angel capital they have raised.
