“The biggest relief for start-ups was the clarifications regarding angel tax as it had caused much headache to both investors as well as start-ups. Further extension of tax exemptions given under Section 54(g) on capital gains is also welcome step,” said Salman Waris, managing partner at TechLegis Advocates & Solicitors.
The conditions laid down by the Department of Promotion of Industry and Internal Trade (DPIIT) in February required start-ups to have the following conditions: They should not have invested in any unused land, any vehicle over ~10 lakh in value, and in jewellery, among others. Besides, a start-up is not allowed to extend loans and advances.
In case of non-compliance, the Budget has proposed imposition of angel tax on an amount exceeding the face value of shares during the year of non-compliance, with stipulated conditions.
Now, fair market value will be accounted for. The alternative investment fund (AIF) community also welcomed changes that all subcategories of Category I AIF get an exemption from Section 56.
“This is a great relief for the AIF ecosystem. The exemption applicable for category I (all subcategories) and category II AIFs (only venture capital undertakings or VCUs) from the purview of Section 56 is a big win and will certainly boost more transactions in this niche. We'd like to thank DPIIT secretary, the Central Board of Direct Taxes as well as the commerce and industry ministries for putting their efforts and on the prompt resolution of the angel tax issue,” said Rajat Tandon, president, Indian Private Equity and Venture Capital Association.