Interim finance minister Piyush Goyal on Monday said companies that are honest in raising money through genuine ways at a premium will not face any action. Goyal was replying to a question in the Lok Sabha that the interim budget skipped mentioning the angel tax issue that start-ups and venture capital investors’ community has been reportedly grappling with.
“The government is taking strong measures so that action can be taken on ‘bad companies’,” said Goyal.
It is natural that prediction is made over the value of the company and based on that the premium is received, he said adding that honest companies that raise genuine money on premium will not face any kind of action, this I want to assure the country and Parliament.
Industry associations and start-ups have been involved in multiple meetings and discussions to iron out issues related to Section 56(2)(viib) of the Income Tax Act, 1961 called as angel tax.
The law states that cases where a closely held company issues its shares at a price more than its fair market value, the amount received in excess of the fair market value will be charged as income from other sources.
A latest survey by PE, VC body IVCA and community social media platform LocalCircles highlighted that over 2,100 or 73% of the startups that raised angel funding since their inception (before or after 2011) have been slapped with one or more angel tax notices from the income tax department.
73% startups that received angel tax notices had raised funding between Rs 50 lakh to Rs 2 crores.
“Like we said that let data do the talking, this brings more clarity to the issue of angel taxation…seemingly this survey gives a more credible data,” IVCA president Rajat Tandon said in the survey.
The government, however, is likely to raise the funding exemption limit under angel tax from Rs 10 crore to Rs 25 crore, source told the Financial Express.