Several startups have raised concerns to taxation of angel funds under Section 56 of the Income Tax Act, which provides for taxation of funds received by an entity. This section provides that where a closely held company issues its shares at a price more than its fair market value, the amount received in excess of the fair market value will be charged to tax the company as income from other sources.

Startups also enjoy income tax benefit for three out of seven consecutive assessment years. To avail the concessions, startups would have to approach an eight-member inter-ministerial board of certification. Normally about 300-400 startups get angel funding in an year. The government has extended tax benefits to just 88 startups out of 8,765 that have been recognised by DIPP since January 2016.The government launched the ‘Startup India' initiative on January 16, 2016 to build a strong ecosystem for nurturing innovation and entrepreneurship.

Further, as the approval from inter-ministerial board would specify details of proposed investors, every funding from a new investor would require fresh approvals from the ‘Startup India' programme. To enrol for ‘Startup India registration get in touch with EzeeStartup.com or call us at +91 8447037100