Startup companies and angel investors have made a fresh plea to interim union finance minister Piyush Goyal and union commerce minister Suresh Prabhu to exempt them from 'Angel Tax,' saying the tax structure continues to be a vexing issue.

On January 16, the government issued a circular easing 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.

However, startup companies and angel investors have petitioned the Department of Industrial Policy and Promotion (DIPP) seeking changes to the January 16 circular that does not give the immunity sought by the industry, sources told CNBC-TV18, requesting anonymity.

Startups had earlier written to the revenue department, DIPP and Central Board of Direct Taxes (CBDT) on the issue after they received notices under Section 56(2) (viib) of the Income Tax Act from the I-T department to pay taxes on angel funds raised by them.

DIPP, under the commerce and industry ministry, has also sought views from stakeholders for better implementation of the recently announced procedure for startups to seek angel tax exemption.

In January, startups had written to the PMO, demanding the Section 56 of the Income Tax Act for DIPP level 1 to be recognised for the industry.

The startups companies are also willing to submit additional documents for last two years (audited financials, monthly expenses, employee details, TDS returns, GST returns).

While Section 56 has been the main cause of concern for angel tax, since it considers capital raised above fair market value of shares as income from other sources, startups are also seeking relief from Section 68, which deals with money credited for which the company does not have a satisfactory explanation or has to also offer details on source of income of the investors.

The DIPP is to hold a round-table on February 4 with startup industry representatives, where the CBDT officials and the revenue secretary will also attend.

A startup which is recognised by the DIPP would be eligible to seek the exemption, subject to certain conditions. Startups will have to provide account details and return of income for the past three years. Similarly, investors would also have to give its net worth details and return of income.

First Published:Jan 29, 2019 12:39 PM IST