Ministry of Commerce & Industry

Suresh Prabhu clears proposal to encourage investments in Start-Ups

DPIIT to issue notification today

Dated: 19 FEB 2019

Union Minister of Commerce & Industry and Civil Aviation, Suresh Prabhu has cleared a proposal aiming at simplifying the process of exemptions for Start-ups under Section 56(2)(viib) of Income Tax Act. The Department for Promotion of Industry and Internal Trade (DPIIT) will be issuing a gazette notification today to this effect.

In order to catalyse entrepreneurship by enabling angel investments to innovators across all sections of society and all sectors of economy, a Gazette notification in partial modification of Gazette Notification number G.S.R 364 (E) dated April 11, 2018 was issued on 16.02.19. However, concerns were expressed regarding taxation of angel investments and there were issues that needed to be addressed to ensure availability of capital to Start-ups.

The Minister took up these issues with concerned officials and a roundtable was organized on 4th February, 2019 under the chairmanship of Secretary DPIIT with Start-ups, angel investors, and other stakeholders with a view to discuss the new measures undertaken by the Department to address the Angel Tax issue and understand the mechanism to deal with it institutionally.

With this notification, the definition of Start-ups will be expanded. Now an entity will be considered as a Start-ups upto a period of ten years from the date of incorporation and registration in place of the earlier duration of 7 years. Similarly, an entity will continue to be recognised as a Start-ups, if its turnover for any of the financial years since incorporation and registration has not exceeded Rs. 100 crore in place of Rs. 25 crore earlier.

A Start-ups will be eligible for exemption under Section 56(2)(viib) of Income Tax Act, if it is a private limited company recognized by DPIIT and is not investing in any of the following assets:

i. building or land appurtenant thereto, being a residential house, other than that used by the Start-ups for the purposes of renting or held by it as stock-in-trade, in the ordinary course of business;

ii. land or building, or both, not being a residential house, other than that occupied by the Start-ups for its business or used by it for purposes of renting or held by it as stock-in trade, in the ordinary course of business;

iii. loans and advances, other than loans or advances extended in the ordinary course of business by the Start-ups where the lending of money is substantial part of its business;

iv. capital contribution made to any other entity;

v. shares and securities;

vi. a motor vehicle, aircraft, yacht or any other mode of transport, the actual cost of which exceeds ten lakh rupees, other than that held by the Start-ups for the purpose of plying, hiring, leasing or as stock-in-trade, in the ordinary course of business;

jewellary other than that held by the Start-ups as stock-in-trade in the ordinary course of business;

vii. any other asset, whether in the nature of capital asset or otherwise, of the nature specified in sub-clauses (iv) to (ix) of clause (d) of Explanation to clause (vii) of sub-section (2) of section 56 of the Act.

Consideration received by eligible Start-ups for shares issued or proposed to be issued shall be exempt up to an aggregate limit of Rs. 25 crore.

In addition, consideration received by eligible Start-ups for shares issued or proposed to be issued to a listed company having a net worth of Rs.100 crore or turnover of at least Rs. 250 crore will also be exempted.

The aggregate limit of Rs. 25 crore will exclude consideration received by eligible Start-ups for the following classes of persons:

i. Non-Residents

ii. Alternative Investment Funds- Category-I registered with SEBI

iii. Listed company having a net worth of Rs.100 Crores or turnover of at least Rs. 250 crore provided that its shares are frequently traded as per SEBI (Substantial Acquisition of Shares and Takeovers) Regulations, 2011

Start-ups will file a duly signed declaration with DPIIT for availing exemption. The declaration will be transmitted by DPIIT to CBDT.

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MM/ SB

(Release ID: 1565168)

 

Aadhaar-PAN linking is mandatory now which has to be completed till 31.3.2019 by the PAN holders requiring filing of Income Tax Return.

Constitutional validity of Aadhaar has been upheld by the Hon'ble Supreme Court of India in September 2018. Consequently, in terms of Section 139AA of Income Tax Act.,1961 and order dated 30.6.2018 of the Central Board of Direct Taxes, Aadhaar-PAN linking is mandatory now which has to be completed till 31.3.2019 by the PAN holders requiring filing of Income Tax Return.

Procedure for Aadhaar PAN linking has been published vide notification no. 7 dated 29.6.2017 by Pr. Director General of Income Tax(Systems).

Advertisements were also published in leading news papers for information of PAN holders.

 

 

Ministry of Finance

Taxation of Digital Businesses

Dated: 12 FEB 2019

The Government has not held any consultation regarding taxation of digital businesses as such. However, to address the challenges posed by the enterprises who conduct their business through digital means and carry-out activities in the country remotely, the following measures have been taken:

1) A new levy by the name of ‘Equalisation Levy’ was introduced vide Chapter VIII of the Finance Act, 2016. The introduction of the levy was based on the recommendations of a Committee, comprising of officers of the Income-tax Department and member of the general public, constituted by the Government to deliberate on the issue of taxation of the digital economy in the light of the report on Action Plan 1 of the OECD Base Erosion and Profit Shifting (BEPS) project and suggest possible measures. Presently, the levy is charged @ 6% of the amount of consideration for specified services received or receivable by a non-resident not having permanent establishment ('PE') in India, from a resident in India who carries out business or profession, or from a non-resident having permanent establishment in India, where the aggregate amount of such consideration exceeds one lakh rupees in a previous year.

2) Section 9(1)(i) of the Income-tax Act, 1961 (‘the Income-tax Act’) was amended to bring in the concept of “Significant Economic Presence” for establishing “business connection” in the case of non-resident in India. Accordingly, significant economic presence shall mean–

i. Any transaction in respect of any goods, services or property carried out by a non-resident in India including provision of download of data or software in India if the aggregate of payments arising from such transaction or transactions during the previous year exceeds the amount as may be prescribed; or

ii. Systematic and continuous soliciting of its business activities or engaging in interaction with such number of users as may be prescribed, in India through digital means.

In order to prescribe the thresholds as mentioned above, suggestions/comments of stakeholders and the general public have been invited in order to prescribe the thresholds to establish significant economic presence of a non-resident in India. The comments and suggestions so received are under consideration.

If digital businesses operated by non-residents are structured to artificially avoid establishment of a “business connection” or “permanent establishment” in India, including by way of claiming the activities carried out in India to be preparatory or auxiliary in nature, the GAAR provisions under the Income-tax Act may become applicable to the income of such digital businesses in India. Signing of the Multilateral Instrument is unlikely to address the broader tax challenges of digitalisation of economy owing to the redundancy of physical presence-based nexus.

The imposition of Equalization Levy has led to increase in tax collection. The collection under the Equalisation levy exceeded Rs. 550 crore for FY 2017-18. Further, the introduction of taxation based on significant economic presence is also expected to increase tax collection as it seeks to widen the tax base in India by establishing business connection and charging to tax income earned by digital businesses which operate out of jurisdictions with which India has not entered into a Double Taxation Avoidance Agreement (DTAA). However, in respect of digital businesses operating out of jurisdictions with which India has already entered into a DTAA, significant economic presence will only be effective after renegotiation of such DTAA which will be based on international consensus.

This was stated by Shri Shiv Pratap Shukla, Minister of State for Finance in a written reply to a Question in Rajya Sabha today.

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DSM/KA

(Release ID: 1564086)

 

Ministry of Finance

Income Tax Refunds

Dated: 12 FEB 2019

The level of income-tax compliance has continuously increased over the last three Financial Years, which is reflected in the number of Income-Tax Returns filed over this period, as given hereunder: -

S.No.	Financial	Total Number of	Percentage increase
	Year	Income Tax	over previous Financial
		Returns filed	Year
(a)	(b)	(c)	(d)
1	2015-16	4.63 Crore	14.6%
2	2016-17	5.57 Crore	20.3%
3	2017-18	6.86 Crore	23.2%

  The total amount of refunds made to the assessees during the period under reference is as under:

 

Financial Year		Refund
		(Rs. Crore)
2015-16		122271
2016-17		162661
2017-18		151602
2018-19  (up  to  2nd	February,
2019)		143117

As on 15^th January 2019, 3,07,485 returns including 36,616 cases of refunds are pending for scrutiny.  The scrutiny of these cases is to be completed by 31.12.2019. A total of 16,21,848 claims of refund (including non-scrutiny cases) are pending for issue as on 31st January, 2019.

Since only about 0.5% of the returns is selected for scrutiny, refunds are issued expeditiously at the time of processing itself for the bulk of the taxpayers. With regard to the pending scrutiny cases, the Assessing Officers have already been advised in the Central Action Plan for 2018-19 to expedite assessment in such cases, especially cases selected for “limited scrutiny”, so that resultant refunds, if any, can be issued at the earliest.

This was stated by Shri Shiv Pratap Shukla, Minister of State for Finance in written reply to a Question in Rajya Sabha today.

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DSM/KA

 

 

Government of India
Ministry of Finance
Department of Revenue
Central Board of Direct Taxes

New Delhi, 8th February, 2019

PRESS RELEASE

Note on Recovery of Tax in the case of Travel Khana

It has come to the notice of CBDT, through some media reports that Rs. 36 lakh have been recovered from a startup,  namely, Travel Khana as part of recovery of outstanding demand on account of Angel Tax. It has been alleged that this was in violation of the CBDT instructions dated 24th December, 2018 pertaining to recovery of dues in Angel Tax cases.

On ascertaining the facts it is seen that the additions in the case were made under section 68 of the Income-tax Act, 1961 on account of unexplained cash credits & not under section 56(2)(viib) on account of premium on shares, as has been alleged. 

During the assessment proceedings, the assessing officer requested for confirmation of the persons from whom deposits had been received. Wherever confirmations were submitted, the same were accepted by the assessing officer and no addition was made. However, where no confirmations were furnished by the assessee, the assessing officer made the addition after issuing proper show-cause notice and obtaining reply in the matter. Thus, the addition was made only when the assessee failed to substantiate the source of the deposit resulting in demand of Rs. 2.22 crore approximately.

The assessee did not obtain any stay in respect of the demand raised. Had the stay been obtained, recovery proceedings would not have been instituted by the Department. Since there was no stay against recovery and the demand had become due, the Department recovered Rs. 36 lakh after attaching the bank accounts of the assessee. Thereafter, all the bank accounts were released. 

It may also be noted that neither the assessee nor it`s Director submitted any certificate from DIPP to indicate its status of being a startup, either during the assessment proceedings or thereafter. Had such a certificate been furnished, this situation would not have arisen.

Thus, it is clear that the case of Travel Khana is not covered by the instruction issued by CBDT dated 24th December,2018 prohibiting coercive measures for enforcing recovery of outstanding demand in Angel Tax cases, as the addition was made under section 68 of the IT Act and not under section 56(2)(viib). Therefore, the action of the assessing officer of enforcing recovery of demand is not in violation of CBDT’s instructions.

Notwithstanding the above, the benefit of doubt should and must be given to our entrepreneurs. However, when after repeated reminders, records of funds received are not provided, the Department is unfortunately left with no other choice. It is also our duty to prevent and expose suspected evasion.

(Surabhi Ahluwalia)
Commissioner of Income Tax
(Media & Technical Policy)
Official Spokesperson, CBDT.