CBDT notifies specified class of investors and start-up companies exempt from angel tax provisions

This Tax Alert explains a recent Notification Nos. 29 and 30 of 2023 dated 24 May 2023 (Notifications) issued by the Central Board of Direct Taxes (CBDT) notifying the various classes of persons whose investments shall be excluded from the scope of angel tax provisions under the Income-tax Laws (ITL).

Notification No. 29/2023 enlists three categories of persons whose investments in closely held companies (CHCs) shall not be covered under the ambit of angel tax provisions viz. (a) Government and Government related investors (b) banks or regulated entities involved in insurance business and (c) Securities and Exchange Board of India  (SEBI) registered Category-I Foreign Portfolio Investors, endowment funds, pension funds and Broad-Based Pooled Investment Vehicles or funds with more than 50 investors (not being a hedge fund or fund which employs diverse or complex trading strategies) being resident in any country or specified territory from a list of 21 jurisdictions and regulated in the country where it is established, incorporated or resident. This Notification is effective from 24 May 2023.

Notification No. 30/2023 exempts start-up companies from the angel tax provision if the start-up company fulfils the conditions specified by Department for Promotion of Industries and Internal Trade in para 4 of its Notification No. G.S.R 127(E) dated 19 February 2019 and files a self-declaration to that effect. The exemption is applicable where a start-up company issues shares for a consideration at a premium to any person (whether resident or non-resident). The said Notification comes into force retroactively from 1 April 2023. It supersedes the earlier CBDT Notification No. 13/2019 which granted similar exemption to start-ups for issue of shares to resident investors.