Accreditation regime for investors backing startups put on fast track
The Department of Promotion of Industry and Internal Trade (DPIIT) has called a meeting of key stakeholders — investors, startups and incubators — on Thursday for consultations, said a government official aware of the development.
The DPIIT is keen on putting in place a framework that will help startups raise funds without any hitch and save investors from facing any issues subsequently.
The government has already undertaken several steps to shield startups and angel investors from the so-called ‘angel tax’, but the DPIIT feels the new framework would provide a further protection.
The accredited investor regime could provide cover for trusts, individuals and family members of a startup, as also unlisted companies that establish their bona fide.
The move comes after startups and some angel investors got caught in income tax crosshairs due to Section 56(2)(vii)(b) of the Income Tax Act, which provides that if a closely held company issues its shares at a price that exceeds fair market value, the difference will be taxed as income from other sources.
This provision, termed an antiabuse measure, was introduced by then finance minister Pranab Mukherjee in 2012 to prevent money laundering via this route. It was dubbed the angel tax after several startups received notices under Section 56(2)(vii)(b) as their funding typically is more than fair market value.
The recognition framework will ensure genuineness of investors, and therefore would not need a scrutiny under this clause. The scheme could be on the lines of one for foreign portfolio investors, according to people aware of the matter.
As per the latest changes to startup framework, a firm can be a categorised as a startup if its turnover for any of the financial years since its incorporation hasn’t exceeded Rs 100 crore, a fourfold increase from the earlier cap of Rs 25 crore.
Source: ET Tech