Direct tax treatment for startups should be separate, says a panel appointed by Finance Minister Nirmala Sitharaman

Finance Minister Nirmala SitharamanIANS
  • A government tax panel has suggested that tax treatment for startups should be separate, according to reports.
  • The panel was appointed by Finance Minister Nirmala Sitharaman and headed by the chief od Central Board of Direct Taxes.
  • This would make way for a more startup friendly environment.
The Indian government is considering a change in brackets for direct taxes, according to reports. And the ones to cheer for this news will be startups, as a panel appointed by Finance Minister Nirmala Sitharaman has reportedly proposed a separate tax treatment for startups, and Economic Times report said citing sources.

The thrust seems to be in ensuring that there is no direct interface between the taxman and the firm. “An emphasis on reducing litigation and making the interface of the department with taxpayers anonymous to eliminate harassment and corruption,” the report said.

The relationship between the government and the startup community had soured recently after the tax department started sending notices to companies based on the ‘angel tax’ provision, which was introduced in 2012. The law therin mandated that angel investments should be treated as “income from other sources” if the startup issues shares at a price that exceeds the fair market value of the shares.

The irate community of startups and investors went up in arms demanding relief until the government gave in.

However, to be exempt from angel tax a startup has to be registered with the Department for Promotion of Industry and Internal Trade (DPIIT, previously named DIPP).

Recently, the Central Board of Direct Taxes had announced relief for startups who were served with notices regarding angel tax. So, even if a DPIIT recognised startup which has not filled Form 2 (declaration by a startup for exemption), it will be exempted from angel tax with approval from a supervisor.

The government is looking to boost its friendly image for startups.

During the Union Budget 2019, Sitharaman had also announced a television channel for startups alone. This channel will work as a platform for promoting startups, discussing their growth as well as funding and tax planning. This will be run by startups themselves.

The Minister had also said that 80 livelihood business incubators and 20 technology business incubators in 2019-2020 to encourage and develop 75,000 social entrepreneurs in India.
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