Ventures Capital funded startups exempted from taxation u/s 56 of Income Tax Act

MCA Updates

Govt. has been working towards the welfare of the startup ecosystem and towards easing the norms for providing tax relief to Startups on angel investments. Thus, Govt. has recently announced that startups which are receiving Venture Capital Fund would be exempted from taxation as per Section 56, (2) (vii b) of Income Tax Act 1961. In addition, it has been clarified that angel Fund is sub category of Ventures Capital Fund under Category-I Alternative Investment Fund (AIF), hence, eligible for the same exemption. 

In addition, MCA informs that DPIIT have started accepted applications and declarations from Startups applying for Angel Tax Exemption and on the receipt of the same DPIIT forwards these applications to CBDT. As on 21st June, 2019 a total of 944 applications for Angel Tax Exemption have been received. Thirty-nine applications have been found to be incomplete, and 203 applications were repeat or modified applications. CBDT has exempted 702 startups under this provision.

Further, Central Board of Direct Taxes (CBDT) vide their notification number S.O. 1131(E) dated 5th March 2019 mentioned that Section 56 (2) vii(b) of Act shall not apply to consideration received by a company for issue of shares that exceeds the face value of such shares, if the said consideration has been received from a person, being a resident, by a company which fulfils the conditions specified in notification number G.S.R. 127(E), dated 19th February, 2019 of DPIIT

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