The maiden budget of finance minister Nirmala Sitharaman had much good news for the startup sector, especially related to the 'angel tax' exemption. Section 56 (2) of the Income Tax Act is known to be the angel tax as it counted any investment above the fair market value of shares as income from other sources and taxed accordingly.

In her budget speech, Sitharaman addressed the issue of identifying the investor and the source of his funds, adding that it will be resolved by putting in a mechanism of e-verification, wherein the funds raised by the start-ups will not require any kind of scrutiny by the I-T department.

Sitharaman also announced special administrative arrangements for pending cases of assessment of startups and their redressal, by the Central Board of Direct Taxes (CBDT).

“It will be ensured that no inquiry or verification in such cases can be carried out by the Assessing Officer without obtaining approval of his supervisory officer”, she further added.

Apart from the angel-tax deduction, the finance minister also announced the exemptions of funds to be extended from Category-I Alternative Investment Funds (AIF) to Category-II also, hence exempting it from further income tax scrutiny for valuations of shares issued by these funds.

Sitharaman also proposed to relax some of the conditions for carrying forward and set off of losses in the case of start-ups. She also proposed to relax exemption period for capital gains for sale of residential houses for investment in startups till 31/3/2021.

In order to promote entrepreneurship in rural areas, the minister proposed to set up 80 livelihood business incubators and 20 tech incubators in 2019-20 to skill as many as 75,000 entrepreneurs in the areas of agro and rural sectors.

Sitharaman also announced a dedicated Doordarshan channel for start-ups, designed and executed by the start-ups themselves. A new initiative by the government will help start-ups to promote themselves, discussing issues affecting their growth, matchmaking with venture capitalists and for funding and tax planning.