Image used for representation.
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Government unlikely to do away with angel tax, say experts

The DPIIT Secretary in a press briefing on Thursday said his department has recommended the removal of Angel Tax to the finance ministry and that it had done so in the past as well.

NEW DELHI: Even though the Department for Promotion of Industries and Internal Trade (DPIIT) has recommended the finance ministry remove the angel tax, it is unlikely that the government may pay attention to such recommendations.

The DPIIT Secretary in a press briefing on Thursday said his department has recommended the removal of Angel Tax to the finance ministry and that it had done so in the past as well. “Ultimately, the decision has to be taken by the ministry,” he told reporters on Thursday.

However, tax experts are of the view that the government is unlikely to remove the angel tax, which is levied on unlisted companies raising capital through the issue of shares.

Rohinton Sidhwa, partner, of Deloitte India, told TNIE that the debate has died down because the government has largely fixed the issue though it’s an irritating thing it involves a lot of documentation.

“Companies have, however, realised that they have to do the paperwork, but at least the issue has gone away,” said Sidhwa. Shruti KP, partner, taxation, AZB & Partners, says the likelihood of any major change (in Angel Tax) is quite limited. If at all, the government may try and provide more exceptions, rather than removing the angel tax provision entirely, she says.

However, she admits that the angel tax is an unnecessary hassle and tax burden for businesses including for startups, especially given that it now applies even to investments made by non-resident investors. “The so-called exceptions do not help very many businesses.

As a tax professional, therefore, I do hope the MOF accepts the recommendation made by DPIIT,” says Shruti KP. Angel tax was introduced in 2012, and it is the tax that unlisted companies are liable to pay on the capital they raise through the issue of shares, and it is calculated based on the premium amount received above the fair market value of the shares.

IT industry body Nasscom in its pre-budget meeting with the finance minister has raised the issue of angel tax. It said very few start-ups can avail the exemption from angel tax and even if a start-up avails exemption, it is not useful. “The end-use restrictions for utilising exempted investments are constraining and impact the business of start-ups,” it added.

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