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Taxman will need approval for unrecognised startups’ scrutiny

Scrutiny of startups not recognised by the Department for Promotion of Industry and Internal Trade on the angel tax issue will be conducted only after sanction from higher authorities, the apex body for direct taxes said. 

The move follows finance minister Nirmala Sitharaman’s assurance in her budget speech that the Central Board of Direct Taxes (CBDT) will take steps to address issues faced by startups. 

“Special administrative arrangements shall be made by CBDT for pending assessments of startups and redressal of their grievances. It will be ensured that no inquiry or verification in such cases can be carried out by the assessing officer without obtaining approval of his supervisory officer,” she had said. 

The government subsequently exempted domestic investments in startups approved by DPIIT from angel tax.

However, startups had concerns over assessments already underway. CBDT’s fresh directive to its field officers seeks to address these concerns. 

The order makes it clear that tax officers will not carry out any verification of issues raised with startups recognised by DPIIT facing ‘limited scrutiny’ and summarily accept their contention.

“Startups recognised by DPIIT where case is selected under ‘limited scrutiny’ with single issue of application of Sec 56 (2) (viib) - No verification on such issues will be done by the AOs during the proceedings u/s 143 (3)/147 and the contention of such recognised startup companies on the issue will be summarily accepted,” it said. 

For inquiry or verification regarding other issues in such cases, officers will need approval from supervisory officers. 

In the case of unrecognised startups, assessing officers will need approval from supervisory officers to pursue any inquiry or verification under the angel tax provision. 

Startups and some angel investors had come under the scanner after the companies issued shares at prices that were said to exceed their fair market value, with the difference considered taxable as income from other sources.

This clarification is for tax assessments by tax officers and not for handling appeals at CIT (A) stage,” said Amit Maheswari, partner at Ashok Maheshwary & Associates LLP


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