Government of India
New Delhi, 19th February 2019
SURESH PRABHU CLEARS PROPOSAL TO ENCOURAGE INVESTMENTS IN START UPS
DPIIT TO ISSUE NOTIFICATION TODAY
Union Minister of Commerce & Industry and Civil Aviation, Suresh Prabhu has cleared a
proposal aiming at simplifying the process of exemptions for Start-ups under Section 56
(2) (viib) of Income Tax Act. The Department for Promotion of Industry and Internal
Trade (DPIIT) will be issuing a gazette notification today to this effect.
In order to catalyse entrepreneurship by enabling angel investments to innovators across
all sections of society and all sectors of economy, a Gazette notification in partial
modification of Gazette Notification number G.S.R 364 (E) dated April 11, 2018 was
issued on 16.02.19. However, concerns were expressed regarding taxation of angel
investments and there were issues that needed to be addressed to ensure availability of
capital to Start-ups.
The Minister took up these issues with concerned officials and a roundtable wasorganized on 4th February, 2019 under the chairmanship of Secretary DPIIT with Start-
ups, angel investors, and other stakeholders with a view to discuss the new measuresundertaken by the Department to address the Angel Tax issue and understand the mechanism to deal with it institutionally.
With this notification, the definition of Start-ups will be expanded. Now an entity will be
considered as a Start-ups upto a period of ten years from the date of incorporation and
registration in place of the earlier duration of 7 years. Similarly, an entity will continue to
be recognised as a Start-ups, if its turnover for any of the financial years since
incorporation and registration has not exceeded Rs. 100 crore in place of Rs. 25 crore
earlier.
A Start-ups will be eligible for exemption under Section 56 (2) (viib) of Income Tax Act,
if it is a private limited company recognized by DPIIT and is not investing in any of the
following assets:
(i) building or land appurtenant thereto, being a residential house, other than that
used by the Start-ups for the purposes of renting or held by it as stock-in-trade,
in the ordinary course of business;
(ii) land or building, or both, not being a residential house, other than that occupied
by the Start-ups for its business or used by it for purposes of renting or held by
it as stock-in trade, in the ordinary course of business;
(iii) loans and advances, other than loans or advances extended in the ordinary
course of business by the Start-ups where the lending of money is substantial
part of its business;
(iv) capital contribution made to any other entity;
(v) shares and securities;
(vi) a motor vehicle, aircraft, yacht or any other mode of transport, the actual cost of
which exceeds ten lakh rupees, other than that held by the Start-ups for the
purpose of plying, hiring, leasing or as stock-in-trade, in the ordinary course of
business;
(vii) jewellary other than that held by the Start-ups as stock-in-trade in the ordinary
course of business;
(viii) any other asset, whether in the nature of capital asset or otherwise, of thenature specified in sub-clauses (iv) to (ix) of clause (d) of Explanation to clause
(vii) of sub-section (2) of section 56 of the Act.
Consideration received by eligible Start-ups for shares issued or proposed to be issued
shall be exempt up to an aggregate limit of Rs. 25 crore.
In addition, consideration received by eligible Start-ups for shares issued or proposed to
be issued to a listed company having a net worth of Rs.100 crore or turnover of at least
Rs. 250 crore will also be exempted.
The aggregate limit of Rs. 25 crore will exclude consideration received by eligible Start-
ups for the following classes of persons:
(i) Non-Residents
(ii) Alternative Investment Funds- Category-I registered with SEBI
(iii) Listed company having a net worth of Rs.100 Crores or turnover of at least
Rs. 250 crore provided that its shares are frequently traded as per SEBI
(Substantial Acquisition of Shares and Takeovers) Regulations, 2011
Start-ups will file a duly signed declaration with DPIIT for availing exemption. The
declaration will be transmitted by DPIIT to CBDT.
