Government Mulls To Bring In Accredited Investors To Make Tax-Free Investments In Startups

The government is planning to set up a new category of “accredited” investors that will include high net worth individuals and unlisted companies, among others, which can make tax-free investments into startups even above the Rs 25-crore threshold.

“We are now working to provide relief so that investors can invest beyond Rs 25 crore in startups without the fear of Section 56 (2) (viib) of the Income Tax Act,” Ramesh Abhishek, secretary at Department of Promotion of Industry and Internal Trade, said in response to BloombergQuint's query on the sidelines of IVCA conclave in Delhi. The DPIIT, he said, will discuss the proposal with the Central Board of Direct Taxes.

Investments into startups by non-residents, category-I alternate investment funds comprising infrastructure, social venture, venture capital and SME funds, and listed companies with a net worth of Rs 100 crore or turnover of at least Rs 250 crore are exempted under the Rs 25-crore cap.

The proposal to set up this new category of investors, which will also include trusts and limited liability partners, will ‘nail' the problem of angel tax in the country as investments in startups will come from any source, with no limit, Abhishek said. The DPIIT also held a meeting with stakeholders on March 1 to discuss the proposal.

Besides, the startups recommended to include category-II AIFs, including real estate and private equity funds, in the exemption bracket, Abhishek said.

“This was one of the major suggestions by the startups community,” Abey Zachariah, chief executive of Goodbox, told BloombergQuint over the phone. “If this comes into force more money will flow in the startups.”