Facts for Prelims (FFP)
Source: IE
Context: The Central Board of Direct Taxes (CBDT) has issued a directive to its officers, instructing them not to carry out scrutiny of angel tax provisions for start-ups recognized by the Department for Promotion of Industry and Internal Trade (DPIIT).
- The directive comes in response to concerns raised by start-ups regarding scrutiny notices for angel tax.
The CBDT directive outlines two scenarios for recognized start-up companies:
- First, if the case is selected under scrutiny solely for the applicability of Section 56(2)(viib) of the Income-tax Act, no verification is required during the assessment proceedings, and the contention of the recognized start-up on the issue will be accepted.
- Second, if the case is selected under scrutiny for multiple issues, including Section 56(2)(viib) of the Income-tax Act, the issue will not be pursued during the assessment proceedings.
Angel tax is income tax levied at a rate of 30.6% on unlisted companies that issue shares to investors at a price higher than their fair market value.
The Finance Act 2023 amended Section 56(2)(viib) of the Income-tax Act, colloquially known as the ‘angel tax,’ to include foreign investors. DPIIT-recognized start-ups are exempt from the angel tax levy.
