The government has decided to form a panel to look into the issue of angel tax being faced by startups and come out with a workable solution in 4-5 days, said Ramesh Abhishek, secretary, department for promotion of industry and internal trade (DPIIT).

"We had a roundtable on resolving the issue of angel tax. We have a number of suggestions. We will form a small working group and try to come out with some suggestions and solutions in the next 4-5 days," Abhishek said.

The issue was discussed in a meeting convened by DPIIT.

Before the interim budget, startups had urged the government to abolish angel tax. But this matter stayed unaddressed in finance minister Piyush Goyal’s Budget speech on February 1.

According to a recent survey by the Indian Private Equity & Venture Capital Association (IVCA) along with Local Circles highlighted that 73 percent startups that raised capital have received more than one angel tax notices since the date of its inception. Not only that, income tax systems currently do not have a way of identifying a startup and there is an urgent need to do so.

Last month, the government eased the procedure for seeking income tax exemption by startups on investments from angel funds and prescribed a 45-day deadline for a decision on such applications.

The new procedure says that to seek exemption, a startup should apply, with all documents, to DPIIT. The application of the recognised startup shall then be moved to CBDT. A startup recognised by DPIIT would be eligible to seek exemption, subject to certain conditions.

Startups will have to provide account details and return of income for last three years. Similarly, investors would also have to give their net worth details and return of income.

Section 56(2) (viib) of the I-T Act provides that the amount raised in excess of a startup's fair market value is taxed at 30 percent as income of the firm from other sources.

In an interview to CNBC-TV18, Abhishek along with Rajat Tandon, president, IVCA; Nakul Saxena, director public policy, iSPIRT; Sreejith Moolayil, co-founder and COO, True Elements; Padmaja Ruparel, co-founder, Indian Angel Network, and Alok Mittal, co-founder and CEO, Indifi Technologies, discussed the issue.

With inputs from PTI.