19 October 2023
• Angel-tax is the tax that is levied on Startup companies when they issue shares at a price which is higher than the fair market value of such shares.
• When a Startup company raises funds at a price higher than the fair market value, the amount of capital raised over and above the fair market value is treated as income in the company’s hands and thus attracts tax liability.
• Startups are liable to pay Angel-tax under section 56(2)(viib) of the Income-Tax Act, 1961 and under the head ‘Income from other sources’.
• Companies recognized as ‘Startups’ by the Department for Promotion of Industry and Internal
• The company shall be a DPIIT-recognized Startup; and
• The company’s aggregate amount of paid-up share capital and share premium of the startup after issue or proposed issue of shares, if any, shall not exceed INR 25 crores.
• A Startup company desirous of obtaining Angel Tax exemption must file a declaration along with its application.
• Such declaration shall state that the Startup: (a) has not invested till the date of the application; and (b) shall not invest for a period of 7 years from the end of the latest financial year in which the shares are issued by the company, in the following classes of assets:
Note: Kindly click here for Angel-Tax Exemption Declaration template. Please ensure that the declaration is on the letterhead of the company.
• Login to https://www.startupindia.gov.in/ and insert your login credentials.
• Click on the ‘Dashboard’ tab and then, click on ‘DPIIT RECOGNITION’.
• Scroll down the page and come to Form 56 – then click on ‘Click Here To Apply Form 56’.
• Once the form opens, all details but: (i) point 9 (where you have to upload a signed declaration); and (ii) point 10 (declaration signing date), will be pre-filled, basis the information provided at the time of filing the Startup India registration.
• Please ensure that the signed Angel-Tax exemption declaration has complete and accurate details, and that the declaration is on the company’s letterhead.
• Upload the signed declaration in .pdf format and insert the date of signing of declaration. Once done, click on ‘Submit’.
• As a confirmation of the company having received the Angel-Tax exemption, the Startup will receive an email from CBDT at the email ID submitted on the Startup India portal, within 1-3 weeks from the date of filing the application.
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