Even as the government is working to give relief to startups from tax woes, sources privy to the developments told CNBC-TV18 that the taxman would issue another clarification on section 68 of the Income Tax (IT) Act to show its tough stand against entities accommodating unexplained money, irrespective of it being a startup.

"Central Board of Direct Taxes (CBDT) has identified over two dozen of startups, which have unexplained money as an investment and thus they cannot shield themselves in the garb of tax holiday promised to startups," said people familiar with the matter.

While, CBDT will issue a clarification on section 56 of the IT Act, which facilitates tax break to the Department for Promotion of Industry and Internal Trade (DPIIT) certified startups, it will also come up with a separate clarification for section 68 too.

Section 68 of the IT Act works cites that it is the duty of the taxpayer to identify the bonafide investor. It works irrespective of start-ups and covers all entities/individuals/companies.

The taxman also enjoys quasi-judicial powers to seize bank accounts to recover tax due in case of no appeal by the taxpayer if the taxpayer gets notice u/s 68 and does not explain the entity from which cash is being received.

One such recent case was of startup TravelKhana, which was issued a notice under section 56 and 68. However, the startup did not plead to get a stay from the tax appeal office to not to seize the accounts and recover the due tax.

Meanwhile, sources told that the two new clarification will make the stand of the taxman very clear that it will not go easy on startups that have to accommodate unexplained money.

However, CBDT had directed its officers to not to take any coercive action against startups, whether under Section 56 or 68 till the clarifications are issued, sources added. "Only after the clarifications, the assessing officers will review all these cases and then move ahead as per the law," sources said.

First Published:Feb 14, 2019 9:06 PM IST