There is good news for venture capitalists and angel investors that invest in start-ups.
In a recent circular issued by Central Board of Direct Taxes (CBDT), the government has done away with the requirement of disclosing rationale for arriving at a particular valuation of security at which deal is done. This has been implemented retrospectively i.e. the government has overruled an earlier notification, which barred start-ups who had received assessment orders before February 19 from availing Angel Tax exemption.
Admitting that the February 19 notification has “caused hardship” to start ups, CBDT said that the eligible start-ups would get an exemption from the Angel tax, even if their assessment orders were passed before February 19.
When a privately held company raises funds at a rate higher than its “fair value”, the government levies angel tax on it. The measure was introduced to curb tax evasion but it has ended up hurting India’s start-ups ecosystem, who were raising money from angel investors and venture funds through private placement.
The new notification is likely to ease the Indian start-up community’s capital raising woes and help them get tax benefits.