How to apply for Angel-Tax Exemption

What is Angel-Tax Exemption?

• 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

Eligibility for Angel-Tax Exemption

• 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.

Angel-Tax Exemption Declaration

• 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:

• building or land appurtenant thereto, being a residential house, other than that used by the startup for the purposes of renting or held by it as stock-in-trade, in the ordinary course of business;
• land or building, or both, not being a residential house, other than that occupied by the startup 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;
• loans and advances, other than loans or advances extended in the ordinary course of business by the startup where the lending of money is substantial part of its business;
• building or land appurtenant thereto, being a residential house, other than that used by the startup for the purposes of renting or held by it as stock-in-trade, in the ordinary course of business;
• capital contribution made to any other entity;
• shares and securities;
• a motor vehicle, aircraft, yacht or any other mode of transport, the actual cost of which exceeds INR 10 lakhs, other than that held by the startup for the purpose of plying, hiring, leasing or as stock-in-trade, in the ordinary course of business;
• jewellery other than that held by the startup as stock-in-trade in the ordinary course of business;
• archaeological collections;
• drawings;
• paintings;
• sculptures;
• any work of art; or
• bullion.

Note: Kindly click here for Angel-Tax Exemption Declaration template. Please ensure that the declaration is on the letterhead of the company.

How to apply for Angel Tax Exemption?

• 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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