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New Delhi: Ahead of the Budget 2024 later this month, the Department for Promotion of Industry and Internal Trade (DPIIT) has recommended the removal of the contentious Angel Tax for startups ecretary Rajesh Kumar Singh said Thursday. He also said the department has proposed phasing out of the inverted duty structure and high tariff on inputs in sectors such as electronics.

Section 56(2) VII B of the Income Tax Act, also known as angel tax, which was introduced in 2012, as an anti-abuse measure aimed at tax avoidance. It’s levied above a rate of 30%.

“Based on consultations with the startup ecosystem we had, we have recommended that in the past as well, we have recommended this time also,” Singh said.

Industry has sought the removal of Section 56(2)(viib) stating that the step “would greatly aid capital formation in the country”.

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Angel Tax is levied when an unlisted company issues shares to investors at a price higher than its fair market value. The Finance Act 2023 proposed to extend Angel Tax even to non-resident investors from April 1, 2024.

“Ultimately, the integrated view will be taken by the finance ministry on angel tax. It’s just an input from our side. We have done it several times,” Singh said, adding that the department has passed on the written inputs from industry associations to the finance ministry.

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There are around 1,00,000 DPIIT-registered startups in the country.

Inverted duty structure

Singh also said that the department’s view is that various industry associations have raised the issue of lowering customs duties on inputs.

“I tend to agree with them the taxes on inputs should be reduced over time…DPIIT view is that inverted duty and high tariff on inputs will need to be phased out not only in electronics but perhaps in other sectors,” he said, adding that ultimately it is for MeitY and finance ministry to take a view.

  • Published On Jul 5, 2024 at 08:26 AM IST

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