Angel tax is in discussion after the budget presented in Parliament on February 1 by Finance Minister Nirmala Sitharaman . This amendment proposal has blown the senses of start-ups. What is Angel Tax in this copy? What are the concerns of start-ups and what do experts say? An attempt is made to answer these questions. Simply put, angel tax is levied on start-ups. In legal language, it has been arranged under section 56 (2) (vii b) of the Income Tax Act.
Suppose a startup ABCD sold one lakh shares to Mr. X. Recovery of sale price of one share five thousand rupees. Now Startup ABCD has got Rs 50 crore. While the actual market value of a share is only Rs.2000, the actual market value is Rs.20 crores. In this way startup ABCD got a profit of Rs 30 crores. Meaning, now in the new system angel tax will have to be paid on the entire Rs 50 crore. Earlier, angel tax was applicable only on Rs 30 crore.
How did angel tax come into limelight?
According to CA Mukesh Aggarwal, now companies with a turnover of 100 crores have to pay 30% tax on their profits. A company with less turnover than this has to pay 25 per cent tax on profit, even if it is a start-up. Angel tax came in news because during the Union Budget 2023, Finance Minister Smt. Nirmala Sitharaman proposed an amendment to it. According to this, now the amount of equity that startups will get in the changed system will be subject to income tax and not to angel tax.
Startups are disappointed with this move of the central government. They say that most of the investors of startups are from abroad. Startup investment is already declining. In 2022, this investment drops to 33 per cent. The new change in Angel Tax is going to further affect startup investment. Startup operators say that this will also have a negative impact on the startup policy of the government.
Why was Angel Tax introduced?
Experts say that the government has come to know that many companies are doing tax fraud in the guise of startups. Since they are not listed on the stock exchange, they decide the price of their shares themselves. And this is where things go wrong. The lapse on the part of the government was that there is no restriction on registering more and more startups. There is no investigation. Go to the portal and register yourself as a start-up.
Since, the central and state governments give various exemptions to start-ups, established businessmen also started taking advantage of it by opening startups. And from here the misappropriation of money also started. That is why the government had to bring this amendment.
There will be less possibility of financial disturbance
CA Mukesh Aggarwal says that the central government will have to mark the startup before registration. It may be that the number of startups will decrease slightly, but the chances of financial irregularities will be reduced. When the government started giving many different types of discounts for startups, people quickly registered themselves in startups and kept taking government benefits. Agarwal says that with the new amendment, startups have come on the radar of the government. Now they will not be able to do arbitrary.
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