Tax Reforms

Startups to be listed for angel tax exemption


Mains Paper 3: Economy | Effects Of Liberalization On The Economy

From the UPSC perspective, the following things are important:

Prelims level: Angel Tax

Mains level: Interventions required by the government to diversify India’s startup’s financing


  • The Department for Promotion of Industry and Internal Trade (DPIIT) and the Central Board of Direct Taxes (CBDT) has agreed to compile a list of startups eligible for angel tax exemption, based on their audited financial statements and income tax returns of the previous year.

Why such move?

  1. Angel tax is imposed on the excess share capital raised by an unlisted firm, over and above the fair market value of its shares.
  2. This tax usually impacts startups and the angel investments they attract.
  3. While aimed at curbing money-laundering, the angel tax has also resulted in a large number of genuine startups receiving notices from the IT Department.

Criteria for Exemption

  1. The government has decided to raise the maximum time limit below which a firm would be deemed eligible for angel tax exemption to 10 years from the earlier seven.
  2. Further, the paid-up share capital threshold below which startups would be eligible for an exemption has been set at ₹25 crore.
  3. In cases where the investment exceeds ₹25 crore, the firms would be eligible for exemption if the angel investors can prove a net worth of ₹2 crore or more in the previous financial year.
  4. For investments below ₹25 crore, no questions would be asked.


  1. Startups would have to furnish three types of documents in order to be registered with the government:
  • Audited financials for the previous year,
  • IT returns for the previous year, and
  • A self-certified declaration.
  1. The declaration is to certify that the firm does not have ownership or investments nor plans to deploy the angel investment in real estate holdings of any kind and assets, including premium cars of value above ₹10 lakh, gold and art, diamonds, precious metals or jewellery etc.
  2. The declaration has to also acknowledge that if the company possesses any of these items, then the exemption granted from Section 56(2)(viib) would be revoked with retrospective effect.
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