Start-ups and their investors filing requisite declarations not to be subjected to any scrutiny regarding valuations of share premiums

E-verification mechanism proposed for establishing identity of the investor and source of his funds

TV programme proposed exclusively for Start-ups within the DD bouquet of channels

Government to launch scheme inviting global companies to set up mega-manufacturing plants in sunrise and advanced technology areas

The Start-ups and their investors who file requisite declarations and provide information in their returns will not be subjected to any kind of scrutiny in respect of valuations of share premiums. This has been proposed in the Union Budget 2019-20 presented by the Union Minister of Finance and Corporate Affairs, Smt. Nirmala Sitharaman in the Parliament today with a view to resolve the so-called ‘Angel Tax’ issue.

In her Budget speech, the Finance Minister said that the issue of establishing identity of the investor and source of his funds will be resolved by putting in place a mechanism of e-verification. With this, funds raised by start-ups will not require any kind of scrutiny from the Income Tax Department, she said.

The Minister said that in addition, Special Administrative arrangements shall be made by Central Board of Direct Taxes (CBDT) for pending assessments of start-ups and redressal of their grievances. “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 added.

At present, start-ups are not required to justify fair market value of their shares issued to certain investors including Category-I Alternative Investment Funds (AIF). The Finance Minister proposed to extend this benefit to Category-II Alternative Investment Funds also. Therefore, valuation of shares issued to these funds shall be beyond the scope of income tax scrutiny, she added.

The Finance Minister proposed to relax some of the conditions for carry forward and set off of losses in the case of start-ups. She also proposed to extend the period of exemption of capital gains arising from sale of residential house for investment in start-ups up to 31.3.2021 and relax certain conditions of this exemption. 

TV Programme Exclusively for Start-ups within the DD Bouquet of Channels

Besides the above tax benefits, the Finance Minister also proposed to start a television programme within the DD bouquet of channels exclusively for start-ups. This shall serve as a platform for promoting start-ups, discussing issues affecting their growth, matchmaking with venture capitalists and for funding and tax planning. This channel shall be designed and executed by start-ups themselves.

Mega Investment in Sunrise and Advanced Technology Areas

In order to boost  economic growth and Make in India, the Finance Minister said that the Government will launch a scheme to invite global companies through a transparent competitive bidding to set up mega-manufacturing plants in sunrise and advanced technology areas such as Semi-conductor Fabrication  (FAB), Solar Photo Voltaic cells, Lithium storage batteries, Solar electric charging infrastructure, Computer Servers, Laptops, etc. and provide them investment linked income tax exemptions under section 35 AD of the Income Tax Act, and other indirect tax benefits.

Start-up valuation immunity: declarations and e-verification shield investors from valuation scrutiny and enable relief measures. Start-ups and their investors who file prescribed declarations and return disclosures will not be subject to scrutiny of share premium valuations; an e-verification mechanism will establish investor identity and fund source. CBDT will implement administrative safeguards requiring supervisory approval before Assessing Officers may carry out inquiries in these cases. The valuation immunity is extended to Category-II Alternative Investment Funds. Additional measures include relaxations for carry forward and set off of start-up losses, extension and easing of capital gains reinvestment exemption, a dedicated Doordarshan start-up programme, and a scheme offering investment-linked tax incentives for mega-manufacturing in sunrise technologies.