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India Notification on Tax Exemption for Angel Investments in Qualifying Start-Ups

On 11 April 2018, a notification from India's Department of Industrial Policy and Promotion was published in the Official Gazette concerning an exemption from tax on investments in start-ups. The notification provides that for investments in share capital made by qualifying (angel) investors in qualifying startups, an exemption applies from the tax that is normally due on the amount of investment exceeding the fair market value of the shares. For the purpose of the exemption, an entity may qualify as a startup if established between 1 April 2016 and 1 April 2021 and:

  • The entity is incorporated as a private limited company, or registered as a partnership firm or a limited liability partnership in India, and the period from the date of incorporation/registration has not exceeded seven years (ten years in the case of Startups in the biotechnology sector);
  • The turnover of the entity for any of the financial years since incorporation/ registration has not exceeded INR 250 million; and
  • The entity is working towards innovation, development, or improvement of products, processes, or services, or it has a scalable business model with a high potential for employment generation or wealth creation.

With respect to the investment, the following conditions must be met:

  • The aggregate amount of paid-up share capital and share premium of the startup after the issue of shares must not exceed INR 100 million;
  • The investor must have:
    • An average income of at least INR 2.5 million in the preceding three financial years; or
    • A net worth of at least INR 20 million on the last date of the preceding financial year; and
  • The startup must have obtained a report from a merchant banker specifying the fair market value of shares in accordance with the Income-tax Rules, 1962.

Click the following link for the notification (second half includes English version, including application form).

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