Question: In Context of Angel Tax Controversy, which rules of Income tax act, 1961 has been put in place as a mechanism in order to exempt gains so as to promote start ups in India?
(a) 56(2)
(b) 53 GB
(c) 79 –IAC
(d) 51 EE
Answer: (a)
Related facts:
- On 19 December 2018, Department of Industrial Policy & Promotion (DIPP) has taken notice of the news reports regarding issue of notices by Income Tax authorities to Angel Investors/Start-ups.
- It is noteworthy that funds raised by an unlisted company through equity issuance are covered under this tax to the extent the amount is in excess of the fair market value.
- Such extra inflow is taxable as “income from other sources” under Section 56(2) of the Income Tax Act, and charged the corporate tax rate, resulting in an effective tax of over 30%.
- Since April 2018, DIPP is in consultation with the Department of Revenue (DoR) & has put in place a mechanism to grant exemption from the provisions of Section 56(2) of the Income Tax Act to genuine investors in recognized start-ups.
- DIPP has again taken up this matter of issue of IT notices with the DoR so that there is no harassment of Angel Investors or Start-ups.
- Government is committed to protect legitimate investments into start-ups.
Links:
http://pib.nic.in/newsite/PrintRelease.aspx?relid=186629
https://economictimes.indiatimes.com/small-biz/startups/newsbuzz/angel-tax-continues-to-haunt-startups/articleshow/67332582.cms