A new program
announced by India’s Ministry of Commerce and Industry will provide a tax
exemption for funds received from “angel” investors in new start-up
businesses. The new program had been
expected for some time due to the impact of India’s tax law on investments in
Under section 56
of India’s tax law, any investments in companies are taxable to the extent that
the amount paid for shares exceeds their current fair market value.
incorporated after April 1, 2016 but before April 1, 2021, will be eligible for
the benefit on application. It must be
formed as a private limited company or a limited partnership. The start-up must have received total
investment of less than INR 2.5 million over its prior three years, and must
get a report from a merchant banker verifying the fair market value of its
shares. Application is to an
eight-member panel composed of representatives from the Reserve Bank of India,
The Securities and Exchange Board of India, the Central Board of Direct Taxes,
and additional agencies.
There are also
requirements for the angel investor. The
investor must have a minimum net worth of INR 20 million, or have an average
income of more than INR 2.5 million over the prior three years.
The new policy
is intended to encourage the formation and growth of new businesses, particularly
in the technology sector.