Start-ups that received notices will also be exempt from angel tax if compliant with the recent DPIIT Notification: CBDT
After the Department of Promotion for Industry and Internal Trade (“DPIIT”) issued a notification on angel tax on February 19, 2019 (“DPIIT Notification”) in order to safeguard start-ups from angel tax, the Central Board of Direct Taxes issued a notification (“CBDT Notification”) stipulating that start-ups which have received assessment notices under Section 56(2)(viib) of the Income Tax Act, 1961 will be exempt from paying angel tax if they comply with the DPIIT Notification.
As per the DPIIT Notification, a start-up, irrespective of the amount of premium it receives from investors, would be exempt from paying angel tax if it fulfills the following criteria:
- If the start-up has been registered with the DPIIT (a start-up can register with the DPIIT (i) within 10 years from the date of incorporation: (ii) if it has had a turnover of less than INR 100 crore);
- The paid-up share capital of the start-up, even after the proposed round of investment should be less the INR 25 crore; and
- It must submit a declaration to the CBDT stipulating that it will not utilize money for the acquisition of prohibited assets mentioned in the DPIIT Notification.
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- The CBDT Notification will be welcomed by all stakeholders in the start-up ecosystem and will give a lot of relief to start-ups in India. Even after the DPIIT Notification, the main question that arose was what would be the status of those start-ups that have already received angel tax notices. The CBDT, through the CBDT Notification, has put the matter to rest whereby start-ups that have received angel tax will not need to pay angel tax. This will hopefully aid in the growth of the start-up ecosystem in India.
- Start-ups will need to keep in mind that the CBDT Notification, however, does not state that all proceedings against start-ups will be dropped. Start-ups will still need to approach the CBDT and prove that they comply with the DPIIT Notification, post which the CBDT shall drop the case against the start-up.
Assessee liable to prove that share premium is not unaccounted black money: SC
The Supreme Court (“SC”), in the case of The Principal Commission of Tax (Central)-I v. NRA Iron and Steel Pvt Ltd has ruled that assessees are under a legal obligation to prove that the receipt of share capital/premium is not unaccounted black money to the satisfaction of the Assessing officer, failing which, the amount received would be added to the income of the assessee.
The SC further ruled that if the enquiries and investigations reveal that the identity of the creditors to be dubious or doubtful, or lack credit worthiness, then the genuineness of the transaction would not be established.
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- In this case, the SC has come down strongly on black money being used to buy shares in companies, some of them might even be shell companies. The Central Government has also, recently come down on shell companies by asking all companies to file eForm ACTIVE. However, the SC judgement puts a blanket of uncertainty over all companies in India who are receiving funding by way of issuing shares. This is because it will now be the responsibility of the entity itself to prove that the money coming from the investor is legitimate and not unaccounted money and this needs to be proved to the satisfaction of the Assessing officer which makes the whole process ambiguous.
- This will especially hit start-ups, who after a long battle, got the government to exempt them from angel tax wherein it was left to the discretion of the CBDT as to whether the valuation of the start-up was justifiable. Now start-ups will need to prove that the money coming from its investors are legitimate. One can hope that the CBDT comes up with objective criteria that its officials will need to follow whilst reviewing as to whether the money being invested in the entity is legitimate.
- If the same is allowed to continue, it will lead to uncertainty in the market, which will affect business sentiments across the length and breadth of the county.
Companies with nominal share capital of INR 15 lakhs need not pay any application fee for incorporation
Through a recent notification, the Ministry Corporate Affairs (“MCA”) has amended Rule 38 the Companies Incorporation Rules, 2014 which stated that companies with a nominal capital of less than INR 10 Lakh need not pay any application fee while filing Form INC-32 (SPICe) for incorporation under the Companies Act, 2013. By way of this amendment, the limit has been increased to INR 15 Lakh. Therefore, going forward, companies with a nominal capital of less than INR 15 lakh need not pay any application fees whilst filing Form INC-32 (SPICe).
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The MCA, through this notification, has sought to aid small businesses by ensuring that they do not need to pay any fees prior to incorporating their company. Currently, there are certain entities that do not register themselves under any laws as there is a lot of regulations in order register themselves. By removing the requirement to pay application fees and in turn simplifying the process, this notification will hopefully encourage businesses to register under the Companies Act, 2013 and help in formalizing the economy.
Disclaimer: This post has been prepared for informational purposes only. The information/or observations contained in this post does not constitute legal advice and should not be acted upon in any specific situation without seeking proper legal advice from a practicing attorney.