On Wednesday government said startups would not be harassed if they receive consideration more than its fair price of shares. A section 56 of income tax comes into play when a unlisted company receives funds from Angel investors and Value offered by Angel investor is far more than its fair value. This section is introduced to curb black money where company has no operation still its value is in crores.
Recently few startups received notices from department seeking clarification of base of valuation of shares. DIPP has again taken up this matter of issue of the Income Tax notices with the revenue department so that there is no harassment of angel investors or startups,” DIPP said in a statement issued on Wednesday.
DIPP said that there is a mechanism in place since April 2018 to grant exemption from the provisions of section 56(2) (vii b) of the Income Tax Act to genuine investors in recognised startups.
If the startup can explain how the valuation is justified, there is no tax liability on the premium.
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