The Department for Promotion of Industry and Internal Trade (DPIIT), under the commerce and industry ministry, is working on a definition of ‘accredited investors’, who could be provided tax incentives for investments in startups. The departmenthas already prepared a draft definition and is now seeking views of stakeholders. These accredited investors, which can include trusts, individuals, family member of a startup and unlisted companies, may get exemption from angel tax under Section 56(2) (viib) of Income Tax Act, 1961, beyond the Rs25 crore limits. Currently, the government allows startups to avail full angel tax concession on investments up to Rs25 crore. Besides this, three categories of investors with specified limit of turnover and net worth – listed companies, non-residents and alternate investments funds category I like venture capital funds also get exemption from angel tax on investment beyond Rs25 crore. Section 56(2) (viib) of Income Tax Act provides that the amount raised by a startup in excess of its fair market value would be deemed as income from other sources and would be taxed at 30 percent.
Startups also enjoy income tax benefit for three out of seven consecutive assessment years under section 80-IAC of the Act. To get this benefit, they need to seek the exemption from an inter-ministerial board. An angel investor is the one who put funds in a startup when it is taking steps to establish itself in the competitive market. Normally about 300-400 startups get angel funding in a year. Their investment in a unit ranges between Rs 15 lakh to Rs 4 crore.