Union Budget 2019: angel tax scrutiny for startups and investors withdrawn

The tax was first introduced in 2012 to curb money-laundering through the sale of shares of private unlisted companies at bloated prices.

In a what could be a relief for startup companies with regards to the issue of angel tax, Finance Minister Nirmala Sitharaman on Friday, July 5, 2019, announced that startups and their investors will not be subjected to any kind of income tax scrutiny on their valuation if they are verified by the government.

Angel tax is applicable to unlisted companies that have raised capital through sale of shares at a value above their fair market value. This excess capital is treated as income and taxed accordingly. The tax was first introduced in 2012 to curb money-laundering through the sale of shares of private unlisted companies at bloated prices.

"A mechanism will be set up for this verification of investors and companies. CBDT will set up mechanism to alleviate issues with pending cases regarding angel tax," said Ms. Sitharaman.

The government had, earlier in February 2019, exempted investments of up to ₹25 crore in eligible companies from angel tax, as well as the scrutiny.

In addition, the period of exemption for capital gains arising from sale of house for investment in startups was also extended to March 31, 2021.

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