Wednesday, January 16, 2019

What has Changed for Angel Tax Exemption as per DIPP Notification.

The good news for all recognized startups has arrived ! DIPP has just notified an amendment to its earlier Notification  No. G.S.R.  364(E)dated April 11, 2018. under which  the procedure for startups to seek income tax exemption on investments from angel funds was fixed. Now the Para 4 of the said notification has been substituted  and a new procedure an form ha been prescribed for approval for the purposes of clause (viib) of sub-section (2) of section 56 of the Act.

What is the new procedure of claiming exemption from rigor of section 56(2)(viib)?

The startup needs to apply before DIPP for approval of exemptions from application of section 56(2)(viib) of the Income Tax Act. The DIPP is only forwarding authority . The new rule as per notification dated 16.01.2018 is as under  :
  1. It applies to startups recognized by Govt. under para (iii) (a) of notification 364(E)dated April 11, 2018
  2.  The new rule for exemption applies on a startup company whose paid up share capitlal including premium is upto Rs 10 Crore ( 100 Million)
  3. The investor/ proposed investor should have 
    1.  returned income of Rs. 50 lakh or more for the financial year preceding the year of investment/proposed investment;  and 
    2. net worth exceeding  Rs. 2 crore or the amount of investment made/proposed to be made in the startup, whichever is higher, as on the last date of the financial year preceding the year of investment/proposed investment.So if investor wants to invest Rs 1 Crore ( 10 million) in FY 2019-20, then his/her/its net worth should be exceeding  Rs 20 million by 31/03/2019 .

How the application should be made ?

  1. The startup desirous of getting exemption need to apply in Form-2 prescribed  through new notification. The prescribed documents needs to be attached . 
  2. DIPP will forward the application to CBDT which approve or reject the application with 45 days of receipt of the forwarded application.

Relevant extract of the Notification dated 16.01.2019 given below for ready reference


2. Para 4 of the Notification shall be read as under: 

Approval for the purposes of clause (viib) of sub-section (2) of section 56 of the Act.
4. (1) A Startup which is recognised by DIPP under para 2(iii) (a) shall be eligible to apply for approval for the purposes of  clause (viib) of sub-section (2) to section 56 of the Act for the shares already issued or proposed to be issued if the following conditions are fulfilled—

(i) aggregate amount of paid up share capital and share premium of the startup after the proposed issue of share, if any, does not exceed ten crore rupees;

(ii) The investor/ proposed investor shall have — (a) returned income of Rs. 50 lakh or more for the financial year preceding the year of investment/proposed investment;  and (b) net worth exceeding  Rs. 2 crore or the amount of investment made/proposed to be made in the startup, whichever is higher, as on the last date of the financial year preceding the year of investment/proposed investment.

(2) (i) Application for approval under this para shall be made in Form-2 to DIPP and shall be accompanied by the documents specified therein: 
Provided that in case the approval is requested for shares already issued by the Startup, no application shall be made if assessment order has been passed by assessing officer for the relevant financial year. 
(ii) The application of the recognised startup shall be transmitted by DIPP to CBDT with the necessary documents.
(3) The CBDT, within a period of 45 days from the date of receipt of application from DIPP may grant approval to the Startup for the purposes of clause (viib) of sub-section (2) of section 56 of the Act or decline to grant such approval. 3. In para 5 (1) and 5 (2) after word ‘Board’ words ‘or CBDT’ are added.
4. Para 6 shall read as under:
6. This Notification shall come into effect on the date of its publication in the Official Gazette. The Government will carry out a review of this Notification before 31.03.2021

DIPP Notification on Angel Tax -dated 16.01.2019

MINISTRY OF COMMERCE AND INDUSTRY
(Department of Industrial Policy and Promotion)
NOTIFICATION
New Delhi, the 16th January, 2019
G.S.R. 34(E).—This notification is being issued in partial modification of Gazette Notification  No. G.S.R.  364(E)dated April 11, 2018.

1.  In the said Notification-para 1 (e) is replaced with the following – 
“CBDT means the Central Board of Direct Taxes constituted under the Central Board of Revenue Act, 1963.”

2. Para 4 of the Notification shall be read as under: 

Approval for the purposes of clause (viib) of sub-section (2) of section 56 of the Act.

4. (1) A Startup which is recognised by DIPP under para 2(iii) (a) shall be eligible to apply for approval for the purposes of  clause (viib) of sub-section (2) to section 56 of the Act for the shares already issued or proposed to be issued if the following conditions are fulfilled— (i) aggregate amount of paid up share capital and share premium of the startup after the proposed issue of share, if any, does not exceed ten crore rupees;

(ii) The investor/ proposed investor shall have — (a) returned income of Rs. 50 lakh or more for the financial year preceding the year of investment/proposed investment;  and (b) net worth exceeding  Rs. 2 crore or the amount of investment made/proposed to be made in the startup, whichever is higher, as on the last date of the financial year preceding the year of investment/proposed investment.

(2) (i) Application for approval under this para shall be made in Form-2 to DIPP and shall be accompanied by the documents specified therein: 

Provided that in case the approval is requested for shares already issued by the Startup, no application shall be made if assessment order has been passed by assessing officer for the relevant financial year. 

(ii) The application of the recognised startup shall be transmitted by DIPP to CBDT with the necessary documents.

(3) The CBDT, within a period of 45 days from the date of receipt of application from DIPP may grant approval to the Startup for the purposes of clause (viib) of sub-section (2) of section 56 of the Act or decline to grant such approval. 3. In para 5 (1) and 5 (2) after word ‘Board’ words ‘or CBDT’ are added.

4. Para 6 shall read as under:

6. This Notification shall come into effect on the date of its publication in the Official Gazette. The Government will carry out a review of this Notification before 31.03.2021.

[F.  No. 5(4)/2018-SI]

ANIL AGRAWAL, Jt. Secy.

APPENDIX-I
Form-2 is replaced with the following:
Form-2
Application for approval for the purposes of section 56(2)(viib) of the Income-tax Act, 1961

1. Name of the Startup- .......................................
2. Date of incorporation of Startup as company-
¹Hkkx IIµ[k.M 3(i)º Hkkjr dk jkti=k % vlk/kj.k 5
3. Incorporation No-.......................................
4. Address and business location-.......................................
5. Nature of business- .......................................
6. Contact details of Startup (Phone No. and Email)-.......................................
7. Permanent Account No-.......................................
8. Startup Recognition number allotted by DIPP- .......................................
9. Existing/proposed activities-.......................................
10. Details of share capital as on the date of application-
(i) Amount of share capital.........
(ii) Issue price and date of issue of shares.........
(iii) Type of shares............
(iv) Number of shares.........
(v) Face value............
(vi) Amount of share premium......
11. Details of existing shareholders-
(i)  Name(s)-………..
(ii)  PAN-……
(iii)  Residential status-………..
(iv)  Address-…………
(v)  Number of shares-……….
(vi) Type of shares-............
(vii) Face value-............
(viii) Issue Price and date of issue-………..
(ix) Amount of share premium-......
12. Details of shares along with shareholders for which certification for exemption is sought—
(i)  Name(s)-………..
(ii)  PAN-…… 
(iii)  Residential status-………..
(iv)  Address-…………
(v)  Number of shares-……….
(vi) Type of shares-............
(vii) Face value-............
(viii) Issue Price and date of issue of shares (existing as well as proposed)-………..
(ix) Amount of share premium-......
13. Justification for valuation of shares along with supporting documents, if any.
6   THE GAZETTE OF INDIA : EXTRAORDINARY  [PART II—SEC. 3(i)]
Declaration
I/We hereby certify that the above information furnished by me is true and no relevant information has been concealed.
For (Name of the Startup)
(Name of the authorised signatory) Designation
Place: __________
Date: __________


This form shall be accompanied by the following documents —
a. the annual accounts of the startup for the last three financial years (if the Startup is in existence for less than three years, then annual accounts from the date of its incorporation);
b. Copies of Income Tax returns of the Startup for the last three financial years (if the Startup is in existence for less than three years, then copies of Income Tax returns from the date of its incorporation);
The following documents shall be submitted by the investor(s) directly to DIPP—
c. Copies of income-tax return and net worth certificate of the investor for the relevant financial year.

Sunday, March 18, 2018

7 years for turnover U/s 80-IAC to be Counted From First Year of Claim

It was already reported on this blog that government amended section 80-IAC  Incentive to Startups Proposed in Budget 2018But, as the Finance Bill 2018 was passed, certain changes were made in the proposal. 

As you already know, an eligible start-up can claim a deduction of 100% of profit under section 80-IAC for 3 consecutive assessment years out of 7 years at the option of such start-up subject to certain conditions as given below:

  a) The start-up company is incorporated between April 1, 2016 and March 31, 2021;
  b) The total turnover from start-up business does not exceed Rs. 25 crores in any of the previous year 2016-17 to 2020-21; and
  c) It is engaged in an eligible business which involves innovation, development, deployment or commercialization of new products, processes or services driven by technology or intellectual property.
The Finance Bill, 2018 proposes that the condition of 'turnover does not exceed Rs. 25 crores' shall be checked in 7 previous years commencing from the date of incorporation. 

However, the Finance Bill, 2018 as passed by Lok Sabha now provides that condition of 'turnover does not exceed Rs. 25 crores' shall be checked in 7 previous years commencing from the previous year in which deduction under section 80-IAC is first claimed

Thursday, February 1, 2018

Incentive to Startups Proposed in Budget 2018 !

The government has proposed amended section 80-IAC of the Income Tax Act to provide three important changes that will surely benefit many startups. At present  Section 80-IAC of the Act, provides that deduction under this section shall be available to an eligible start-up for three consecutive assessment years out of seven years at the option of the assessee, if

Tuesday, May 2, 2017

Video & FAQ on Deduction u/s 80IAC for Startups

Section 80IAC of the Income Tax Act provides 100% tax deduction to eligible startups under certain conditions. For easy understanding of the provision , a video is created along with FAQ on the deduction provision .


Video on Startup Deduction u/s 80IAC




FAQ on Section 80IAC

Section 81IAC of the Income Tax Act is as under :


80-IAC. (1) Where the gross total income of an assessee, being an eligible start-up, includes any profits and gains derived from eligible business, there shall, in accordance with and subject to the provisions of this section, be allowed, in computing the total income of the assessee, a deduction of an amount equal to one hundred per cent of the profits and gains derived from such business for three consecutive assessment years.

(2) The deduction specified in sub-section (1) may, at the option of the assessee, be claimed by him for any three consecutive assessment years out of five  years beginning from the year in which the eligible start-up is incorporated.(3) This section applies to a start-up which fulfils the following conditions, namely:—(i) it is not formed by splitting up, or the reconstruction, of a business already in existence:

Provided that this condition shall not apply in respect of a start-up which is formed as a result of the re-establishment, reconstruction or revival by the assessee of the business of any such undertaking as referred to in section 33B, in the circumstances and within the period specified in that section;

(ii) it is not formed by the transfer to a new business of machinery or plant previously used for any purpose.

Explanation 1.—For the purposes of this clause, any machinery or plant which was used outside India by any person other than the assessee shall not be regarded as machinery or plant previously used for any purpose, if all the following conditions are fulfilled, namely:—

(a) such machinery or plant was not, at any time previous to the date of the installation by the assessee, used in India;

(b) such machinery or plant is imported into India;

(c) no deduction on account of depreciation in respect of such machinery or plant has been allowed or is allowable under the provisions of this Act in computing the total income of any person for any period prior to the date of the installation of the machinery or plant by the assessee.Explanation 2.—Where in the case of a start-up, any machinery or plant or any part thereof previously used for any purpose is transferred to a new business and the total value of the machinery or plant or part so transferred does not exceed twenty per cent of the total value of the machinery or plant used in the business, then, for the purposes of clause (ii) of this sub-section, the condition specified therein shall be deemed to have been complied with.(4) The provisions of sub-section (5) and sub-sections (7) to (11) of section 80-IA shall apply to the start-ups for the purpose of allowing deductions under sub-section (1).Explanation.—For the purposes of this section,—(i) "eligible business" means a business which involves innovation, development, deployment or commercialisation of new products, processes or services driven by technology or intellectual property;(ii) "eligible start-up" means a company or a limited liability partnership engaged in eligible business which fulfils the following conditions, namely:—(a) it is incorporated on or after the 1st day of April, 2016 but before the 1st day of April, 2019;(b) the total turnover of its business does not exceed twenty-five crore rupees in any of the previous years beginning on or after the 1st day of April, 2016 and ending on the 31st day of March, 2021; and(c) it holds a certificate of eligible business from the Inter-Ministerial Board of Certification as notified in the Official Gazette by the Central Government;(iii) "limited liability partnership" means a partnership referred to in clause (n) of sub-section (1) of section 2 of the Limited Liability Partnership Act, 2008 (6 of 2009).

Who can get deduction u/s 80IAC ?



Only eligible startups can claim dededuction u/s 80IAC


Who is eligible startup for tax deduction ?

Eligible start-up  means a company or a limited liability partnership
Carrying on business which involves
  • innovation,
  • development,
  • deployment or commercialisation of new products,
  • processes or
  • services driven by technology or intellectual property;


Is that all ? Any other conditions ?


Yes , following conditions must also be satisfied by those company or LLP
  1. it is incorporated on or after the 1st day of April, 2016 but before the 1st day of April, 2019;
  2. the total turnover of its business is less than 250 million ( 25 Crore) in any of the previous years FY 2016-17 to FY 2020-21 and
  3. it holds a certificate from Inter-Ministerial Board of Certification.
How much deduction is allowable to a startup ?


Deduction is 100%  of profit for three consecutive assessment years. Startup can select beginning year within first 7 years of starting the business.
Who are not eligible for claiming deduction ?


Following types of startups not eligible for claiming deduction u/s 80IAC


  1. Startup company or LLP is  not formed by splitting up, or the reconstruction, of a business already in existence.However, start-up formed due to restructuring of business  as per condition u/s 33B is allowed deduction u/s 80IAC.
  2. Starups it is not formed by the transfer to a new business of machinery or plant previously used for any purpose. However, machinery used out side India is allowble if 



  1. Plant & Machinery was not utilized in India by that assessee
  2. Plant & Machinery is imported .
  3. Depreciation was claimed on that

Friday, February 3, 2017

Finance Bill 2017- Two Sure Shot Boost to Startups in India


Finance Bill 2017 presented to Lok Sabha by FM contains two definite tax benefits proposed for the  Startups of India . The push by this government for setting up startup ecosystem is real and solid.

Saturday, December 24, 2016

No Tax Issues for Startups Charging Premium on Issue of Shares !


Funding for starstups in India is now  unshackled from the tax issues that other private companeis face . Earlier this blog had published Relaxation to Startups on Sweet Equity . Now there is another good news on fuund raising front . The fact that the startups gets funding in the begining more on a vision of a business , rather than on actual result . Most of the startups in the begining incur losses  and even from the planning perspective , their brak even years are much later set. So , if in the begining you see the worth of shares of company minus the future or vision of growth in future , the Fair Market Value of each share will be quite low and not even near to the price per share on which the Investors have brought in fundd. This scenario however was raising an income tax issue .