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80,000 start-ups exempt Malhotra said the Budget addressed Direct jobs created by In-
the disparity and the loophole in the
from angel tax, says govt dian startups rose 36% in
provision.
Start-ups "registered" with the De- 2022
"The provision is already there for resi-
partment of Promotion of Industry and
dents. If local residents invest, there is Even as Indian start-ups went on a lay-
Internal Trade (DPIIT) are exempt from
a tax, so why not tax non-residents? If off spree that started in 2022 and has
the "angel tax" extended to them in
companies are selling shares at a pre- continued well into the beginning of
the Budget, Revenue Secretary Sanjay
mium to foreign investors at (a price) the current year, the number of direct
Malhotra told.
over and above the actual price/rate jobs created by these new-age firms
He said the tax provision would apply and it makes profit, we are taxing that rose 36 per cent to around 2.7 lakh last
to all forms of foreign resident inves- profit." year, according to the Economic Sur-
tors, including those structured as vey for 2022-23, tabled in Parliament.
DPIIT Secretary Anurag Jain said start-
funds and institutional investors.
ups recognised by the DPIIT under About 48 per cent of the start-ups in
"Over 80,000 DPIIT-registered start- government's "Startup India" initiative the country come from tier II and tier
ups will not come within the tax pur- were eligible for exemption under Sec- III cities, the Survey said.
view," he said, adding that "regis- tion 56(2)(viib) of the I-T Act, com-
The number of start-ups recognised by
tered" should not be mistaken to be monly known as "angel tax".
the Department for Promotion of In-
"certified".The certified ones will have
"Section 56(2) (viib) used to have two dustry and Internal Trade (DPIIT) has
to pay additional tax.
provisos. One was preferential treat- increased from 452 in 2016 to 84,012
The Budget proposed extending the ment of foreign players. That has done in 2022, which includes more than
angel tax provisions to transactions away with. But there's no change for 1,000 start-ups in the agricultural tech-
involving foreign investors. Till now start-ups. Start-ups recognised by the nology space and over 500 working in
these provisions are applicable only to DPIIT will not attract angel tax if in- millet value chains, it added.
local resident investors, but the ambit vestment is made in them (by foreign
The Survey also said that the rate of
has been expanded as part of the or domestic investors)," Jain said dur-
job creation by start-ups in 2022 was
government's anti-tax avoidance ing a post-Budget interaction with re-
64 per cent higher than the average
move. porters.
of the previous three years. As per the
According to the rule, excess premium The Section says if the amount raised latest report, in 2020, start-ups cre-
received on sales of shares by an Indian by a start-up (during a funding round) ated around 1.6 lakh jobs; around 2
unlisted company to a foreign investor is more than its fair market value, it lakh jobs in 2021; and close to 2.7 lakh
will be construed as "income from would be deemed income from other jobs in 2022, a year where start-ups
other sources" and taxed. sources and taxed at 30 per cent. are estimated to have collectively let

10 | 2023 | MARCH | BANKING FINANCE