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India exempts small firms from angel tax to promote business

[NEW DELHI] India eased taxes for some new businesses on Tuesday, bowing to pressure to exempt them from an "angel tax" on funds they have raised, in an attempt to boost investments and jobs.

Start-ups with an annual turnover of up to one billion rupees (S$18.9 million) will be exempt from paying after small business groups wrote to Prime Minister Narendra Modi last month saying thousands had received notices in the last few months to pay angel tax of about 30 per cent plus a penalty on funds raised in the last seven years.

The government has also raised the limit of investment to 250 million rupees from 100 million rupees on which tax exemptions would be available.

Mr Modi, who is aiming for a second term in national elections due by May, faces criticism for not doing enough for businesses to create jobs.

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Under new rules, ventures that have raised up to 250 million rupees and registered with the Department for Promotion of Industry and Internal Trade will be completely exempt.

And the investment limit for start-ups to get income tax exemption has been raised to one billion rupees, from 250 million rupees, the government said in a statement.

Suresh Prabhu, India's commerce and industry minister said a business would be considered as a start-up for a period of up to ten years after incorporation and registration, raising the period from the previous 7 years.

Business leaders had complained after India's income tax department issued notices to businesses who had received equity infusion in excess of "fair valuation" asking them to pay angel tax on the "premium" paid by investors, treating it as income.

This had forced hundreds to shut and or even flee India.

"Today's announcement is a big relief for small companies," said Sachin Taparia, founder of Local Circles, a network of about 30,000 businesses.

He said new rules will address about 90 per cent of their concerns, and promote investments by non-Indian residents and big companies in new ventures.

Companies will be barred from investing fund they have raised in residential buildings, shares and securities, jewellery or luxury cars, the government said.

New companies are exempted from income tax for up to three years, Mr Taparia said, adding the new rules could benefit about 16,000 registered companies employing nearly 300,000 employees.

Welcoming the government move, Nakul Saxena, of iSpirit, another group of new ventures, said it has eased up the process for start-ups to claim tax exemption and simultaneously expanded the scope of new ventures able to access tax exemptions.

"It now remains to be seen if these measures are implemented with the same spirit as they were formed," said Nakul Saxena, of iSpirit, another group of new ventures. 

REUTERS