The government has announced that it will be mandatory to disclose holdings in unlisted companies while filing tax returns. This data will be matched with filings of startups which have been asked to disclose the list of investors along with some of their details. This may give some relief to the angel investors from notices of the income tax department.
This new filing mechanism for startups will make it simpler for startups. With the two sets of data in their possession, tax authorities need not approach investors with notices. It will also ensure faceless assessment while trying to ensure that there will be no undue scrutiny of honest taxpayers.
Earlier, Several startups had received notices from the I-T department asking them to clear taxes on the angel funding they raised, and in some cases levying a penalty for not paying Angel Tax.
Angel Tax is a 30% tax that is levied on the funding received by startups from an Angel investor. However, this 30% tax is levied when startups receive angel funding at a valuation higher than its ‘fair market value’. It is counted as income to the company and is taxed.
Angel funds refers to a money pool created by high net worth individuals or companies (generally called as angel investors), for investing in business startups. They invest at very early-stage of businesses where other institutional investors such as venture capital funds or private equity funds hesitate to invest