The Finance Ministry issued an official circular saying that it has further simplified the Angel Tax assessment process for all the startups. It said that even if a DPIIT-recognised startup, which has not filed Form No 2, which deals with the exemption of startups from Income Taxsubject to certain criteria, any action against them on Angel Tax will only be taken after approval of a supervisory officer.
The ministry added, “Central Government has further decided to relax Para-6 of the DPIIT notification No 127 (E) dated 19 February 2019 and make it clear that this notification will also be applicable to startup companies where addition under section 56(2)(viib) has been made and the assessee has been recognised by the DPIIT and subsequently filed Form No 2.”
This announcement comes two days after the Central Board of Direct Taxes (CBDT), in a circular, said that no verification will be done by an assessing officer if a startup has been recognised by the Department for Promotion of Industry and Internal Trade (DPIIT) and the case is selected under limited scrutiny.
It said the applicability of Angel Tax would not be pursued during the assessment proceedings and “inquiry or verification with regard to other issues in such cases shall be carried out by the assessing officer only after obtaining approval of his/her supervisory officer.” Even if a startup is not recognised by the DPIIT, then too the inquiry would be carried out after the approval of a supervisory officer.
The Finance Ministry added that in cases where scrutiny assessments of startup entities are pending, it will remain the same as what the CBDT has decided. The CBDT said that startups recognised by DPIIT, which have filed Form No 2 and whose cases are under “limited scrutiny” on the single issue of applicability of section 56(2)(viib), the contention of the assessee will be summarily accepted.
In case a startup is recognised by DPIIT, which have filed Form No 2 and whose cases have been selected under scrutiny to examine multiple issues, including the issue of section 56(2)(viib), this issue will not be pursued during the assessment proceedings and inquiry on other issues will be carried out by the assessing officer only after obtaining approval of the supervisory authority.
The circular followed the announcement made by Finance Minister Nirmala Sitharaman during the Union Budget 2019. She proposed a host of incentives, including a special arrangement for resolution of pending assessments of Income Tax cases, to encourage startups.