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Nearly 7,000 early-age startups may benefit from new angel tax norms: Report

The Department for Promotion of Industry and Internal Trade (DPIIT) has eased angel tax rules, a move which could help as many as 7,000 cash-starved startups, officials told Business Standard.

To allow free flow of capital into the startup ecosystem, the government introduced changes in the sector on February 19, after pressure from venture capital funds and startups for the past three years. Startups that have raised capital up to Rs 25 crore can now claim tax benefits, which was earlier Rs 10 crore. The government also widened the definition of startup and introduced new waivers.

“Around 7,000 firms will get an immediate benefit. It would be many more over time. Many companies on our list have grown beyond just being startups and fall in the tax bracket,” sources added.

These include smaller firms that were unable to raise funds from angel investors due to tax fears. The official based this estimation on the self-declarations by startups at the time of registration.

Moneycontrol couldn’t independently verify the report.

Startups can pick significant investments from non-resident Indians and Alternative Investment Funds (AIFs) after these new norms. This amount will not count towards the Rs 25 crore limit. Also, the government waived off the requirement for the average returned income of the investor to be Rs 50 lakh for the financial year preceding the date of tax filing.

“This helps angels to invest in startups on merit without worrying about unnecessary documentation or being question by the Income Tax Department. We expect larger angel involvements and platforms like the Indian Angel Network (IAN) and others will be able to attract a wider pool of investors from India and globally,” Vipul Sharma, CEO of Chqbook, a fintech startup, told the newspaper.

Industry players expect more high net worth individuals to turn angel investors, as the process gets simpler with the new norms. They even expect investment in startups to double if the markets remain stable. Reports suggest that angel investment in early-age startups in 2018 was nearly $5.5 billion.