Taxman May Continue Probe Against Unregistered Startups
The taxman will continue its inquiry and verification on startups that have been selected for scrutiny and are not registered with the government.
In cases where startups not registered with the Department for Promotion of Industry and Internal Trade have been selected for scrutiny on grounds of Section 56(2)(viib), or any other issue, the assessing officer can continue with verification, with approval of the supervisor, according to a government notification. According to Section 56(2)(viib) of the Income Tax Act, any excess consideration received by a company will be treated as its income if it issues shares to a resident at a price which exceeds the fair market value of the shares.
This comes months after India eased angel tax norms for startups that feared tax demands on investments could deter early-stage investors from making bets on new ventures.
Startups that had received notices from the tax department were still being probed by the taxman despite assurance by the government that funding in startups would not be liable for angel tax.
In the case of a startup recognised with DPIIT, but has been selected for limited scrutiny or complete scrutiny by the income tax department for issues with Section 56(2)(viib), the assessing officer will not pursue verification under this section, the notification said, adding that the assessing officer will pursue verification on other issues after seeking approval of the supervisor.
For a DPIIT-recognised startup selected for limited scrutiny by the tax department, no verification would be conducted by assessing officers