The government has set up a five-member working committee to look into the angel tax issue and come up with guidelines.
Startups, who rely heavily on this funding, have raised concerns over levying taxes on angel funds under Section 56 of the Income Tax Act.
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.
Introduced by Finance Minister in 2012 under the Finance Act 2012, it is currently pegged at 30.9%
The government has refused to scrap the tax as it fears misuse for money-laundering by shell companies.
Government has recently amended the definition of start up to raise (a) age of company from 7 to 10 years and (b) funding above 25 crores as against 10 crores earlier.