DPIIT-registered startups exempt from Angel Tax assessment after Budget 2023

Startups registered with the Department for Promotion of Industry and Internal Trade (DPIIT) will not be subject to assessment proceedings relating to Angel Tax amendments made in Budget 2023.

The Income Tax Department had last month notified new angel tax rules for evaluating the shares issued by unlisted startups to investors.

While previously the angel tax--a tax levied on capital received on the sale of shares of a startup above the fair market value--was applicable only to local investors, the Budget for the 2023-24 fiscal (April 2023 to March 2024) widened its ambit to include foreign investments.

As per the Budget, the excess premium will be considered as 'income from sources' and taxed at the rate of up to over 30%. However, startups registered by the DPIIT were exempt from the new norms.

To give greater clarity to field officers, the Central Board of Direct Taxes (CBDT) has now issued a circular where it states that in case a DPIIT-recognised startup is picked up for scrutiny on this Angel Tax provision, then no verification of such cases will be done by the assessing officer.

The contention of these startups on the issue will be summarily accepted.

"The CBDT circular basically means that startups registered with DPIIT and whose case has been picked up for Angel Tax issues shall not be subject to any Assessment Proceedings, and AO shall be duty bound to give clean chit to such Startups," said Amit Agarwal, Partner, Nangia & Co.

The circular provides much-needed clarity with respect to the applicability of Angel Tax on registered startups and is in the nature of administrative guidance to all field officers.