This means startups registered by the DPIIT Start-ups will not face tax verification on account of angel taxation in case they are picked up for scrutiny. There are 99,380 startups recognised by the DPIIT.
Besides, in cases where proceedings are auto generated, “contentions of such recognised startup companies on the issues will be summarily accepted”. However they may be subject to verification for other taxation issues.
The clarification came after a large number of startups received notices related to angel tax valuation during April and May, including those registered with the DPIIT.
DPPIT-recognised startups are exempted from section 56 (2) (viib) of the IT Act, which determines angel tax. The startups had raised the issue with the officials. “Where the case of such startup company is selected under scrutiny on the single issue of the applicability of section 56(2)(viib), no verification on such issues shall be done by the Assessment Officers under the proceedings under section 143(2) or 147/143(2) of the Income Tax Act,” the CBDT clarification said.
Experts said the circular provided much-needed clarity with respect to applicability of angel tax on registered startups and would prevent them from needless litigation.
“The CBDT circular basically means that startups registered with DPIIT and whose case has been picked up for angel tax issues shall not be subject to any assessment proceedings, and AOs (assessing officers) shall be dutybound to give clean chit to such startups,” said Amit Agarwal, partner, Nangia & Co LLP.
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