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DPIIT-registered startups now exempt from Angel Tax assessment following Budget 2023

Startups registered with the Department for Promotion of Industry and Internal Trade (DPIIT) will not face assessment proceedings related to Angel Tax amendments from Budget 2023.

There are 99,380 startups recognized by the DPIIT (Department for Promotion of Industry and Internal Trade). The CBDT is the highest authority responsible for making policies related to Income Tax.

In the prior month, the Income Tax Department introduced new rules for assessing the value of shares issued by unlisted startups to investors.

Previously, the Angel Tax, a tax imposed on the capital acquired from selling startup shares above their fair market value, only applied to local investors. However, the 2023-24 Budget extended its scope to encompass foreign investments.

As outlined in the Budget, the extra premium will be considered ‘income from sources’ and could be subject to a tax rate exceeding 30%. Nevertheless, startups registered with the DPIIT will be exempt from these new regulations.

The Central Board of Direct Taxes (CBDT) has recently released a circular to provide more straightforward instructions to field officers. This circular specifies that if a startup recognized by DPIIT is selected for scrutiny regarding the Angel Tax provision, the assessing officer will not conduct any verification in such cases.

Instead, the concerns raised by these startups on this matter will be promptly acknowledged and accepted.

“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 AO shall be duty bound to give clean chit to such Startups,” said Amit Agarwal, Partner, Nangia & Co.

The circular offers essential clarification regarding applying Angel Tax to registered startups. It serves as administrative guidance for all field officers.

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