#RoadforStartups: CBDT Announces Assessment Plans to Balance the Tightening of Noose around Start-ups
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Angel Tax has become the “the issue” of start-ups. To spell the word angel tax evokes demonic imagery in the minds of start-ups.
However, the government has been trying hard to ease the concerns of start-ups by pushing away the force of the most dreaded tax in the Indian start-up ecosystem. It exempted 702 start-ups from the tax and most recently, the Union Budget gave bigger reasons to rejoice.
The entrepreneurs from this community who were rooting for the complete removal of ‘Angel Tax’ felt as if their voices had been finally heard. Finance Minister of India, Nirmala Sitharaman, announced in July that if start-ups submit all the papers and documents, then there will not be any scrutiny from the Income Tax department.
Angel tax is a tax that is levied over the difference between the market value of shares and the value calculated by start-ups reduces business growth for someone who most requires it. Sitharaman, also clarified in the budget that the “valuation of shares will be beyond scrutiny.”
And now, the Central Board of Direct Taxes (CBDT), has announced in a circular, that if a start-up is recognized by the Department for Promotion of Industry and Internal Trade (DPIIT), then no enquiry will be initiated against it by the assessing officer. These start-ups will come under the category of “limited scrutiny’ cases with single application of Section 56(2)(viib).”
This will be the first category. The second category will consist of start-ups that are “under limited scrutiny with multiple issues or under complete scrutiny including the issue under Section 56(2)(viib).”
Out of the three categories, start-ups in the first two categories have no reason to get concerned unnecessarily. But the third category could bring some stumbling blocks as start-ups in this category are the ones which have not been registered under DPIIT will find themselves under the lense of a tax official.The government is trying to strike a balance when it comes to tightening the noose around start-ups. Those firms that comply with angel tax requirements have nothing to fear but those who escape tax obligations can risk a massive penalty.