Start-ups that received a notice from the Income-Tax Department over ‘angel tax’ can breathe easy as the government has decided to set up an expert committee to look into the issue.

The issue was discussed at a meeting held between Revenue Secretary Ajay Bhushan Pandey and DIPP (Department of Industrial Policy and Promotions) Secretary Ramesh Abhishek, which was also attended by Chairman, Central Board of Direct Taxes (CBDT) Sushil Chandra.

It was resolved that a decision on issues relating to recognition of start-ups and other matters such as share premium will be taken on the basis of recommendations of a committee of eminent experts drawn from institutions such as IIT and IIM.

According to a statement issued by CBDT, the committee will make a recommendation on individual cases of recognised start-ups to the DIPP on the above issues.

It has also been decided that meanwhile, no coercive action/measures to recover the demands based completed assessments under the Income Tax Act would be taken. Though, government official claimed that notices have been sent to about a dozen start-ups only, industry sources pegged the number at approximately 100.

Exemption from panel

Section 56 of the Income Tax Act provides that where a closely held company issues its shares at a price which is more than its fair market value, the amount received in excess of the fair market value will be charged to tax as income from other sources.

However, exemption can be given after approval from the Inter Ministerial Committee.

The IMC has so far exempted 94 start-ups from income tax. However, since revision of investment norms in April this year, only two start-ups have got the exemption. Start-ups have to qualify on certain parameters such as the ₹25 crore turnover to get the I-T exemption.

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