Startups are not affected by the ‘Angel Tax’ provision in the Finance Bill: DPIIT Secretary

Startups in the country will not be affected by the provision of ‘Angel Tax’ in the Finance Bill. Anurag Jain, Secretary, Department for Promotion of Industry and Internal Trade (DPIIT), said this on Tuesday. Jain said at the IVCA event that startup units registered with the department would not come under its purview. “Let me make one thing clear, at least it will not affect startups,” he said while addressing an event by a group working as public relations for the venture capital industry.

The Secretary said that the provision in the Finance Bill is completely clear. It added that startups recognized by DPIIT are out of the purview of the proposal. Startup recognition process is also very simple. It is automatically received by the applicant. Startups are worried due to the proposed changes in rules in the Finance Bill by way of amendments to section 56(2)(b) of the Income Tax Act. It is also proposed to include foreign investors in the tax net. Under this, if the funds are received above the face value of the shares, the startup raising funds from the foreign investor will also be liable to pay income tax.

Jain said there are other issues that have been raised by the venture capital investing community and have been placed before the revenue department for review. However, he did not elaborate further on those issues. He said that we need to look at how to mobilize domestic capital in startups and new age companies. Changes have already taken place on this front. This includes allowing long-term pension and insurance funds to invest in alternative investment funds. Jain said, “India will be a developed country by 2047 and according to an estimate the size of the economy will be $30 trillion at that time. In this context, India can be the second largest economy in the world at that time.

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