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India Notifies "Angel Tax" Exemptions for Certain Non-Resident Persons and Start-Ups — Orbitax Tax News & Alerts

India's Central Board of Direct Taxes has published Notification No. 29/2023 and Notification No. 30/2023 of 24 May 2023, which provide for the implementation of the "angel tax" exemptions for certain non-resident persons and start-ups in relation to Section 56(2)(viib) of the Income-tax Act, 1961 (previous coverage). Section 56(2)(viib) generally provides that consideration received for the issue of shares that exceeds the fair market value of the shares is chargeable to income tax under the head "Income from other sources", which is known as the "angel tax".

Notification No. 29/2023 provides that Section 56(2)(viib) does not apply to the following (i.e., are exempt from "angel tax"):

  • Government and Government related investors such as central banks, sovereign wealth funds, international or multilateral organizations or agencies including entities controlled by the Government or where direct or indirect ownership of the Government is 75% or more;
  • Banks or Entities involved in Insurance Business where such entity is subject to applicable regulations in the country where it is established or incorporated or is a resident;
  • Any of the following entities, if a resident of any country or specified territory listed in the Notification Annexure, and such entity is subject to applicable regulations in the country where it is established or incorporated or is a resident:
    • entities registered with the Securities and Exchange Board of India as Category-I Foreign Portfolio Investors;
    • endowment funds associated with a university, hospital, or charity;
    • pension funds created or established under the law of the foreign country or specified territory;
    • Broad Based Pooled Investment Vehicles or funds where the number of investors in such a vehicle or fund is more than 50.

The 21 countries and specified territories listed in Notification Annexure include Australia, Austria, Belgium, Canada, the Czech Republic, Denmark, Finland, France, Germany, Iceland, Israel, Italy, Japan, Korea (South), New Zealand, Norway, Russia, Spain, Sweden, the United Kingdom, and the United States.

Notification 30/2023 provides that section 56(2)(viib) does not apply to consideration received by a company from any person for the issuance of shares, which exceeds the face value of such shares, if the company fulfills the conditions specified by the Department for Promotion of Industry and Internal Trade (DPIIT) and files the required declaration. This provides the exemption for investments in start-ups.