Indian Department for Promotion of Industry and Internal Trade (DPIIT) eased tax norms for new businesses from February 19, in a bid to boost investment and job creation.

The angel tax is levied on start-ups when they raise funds at a rate higher than its “fair market value.” The Section 56 of the Income Tax Act provides that the amount raised by a start-up in excess of its fair market value would be deemed as income from other sources and would be taxed at 30 per cent. This section was introduced as an anti-abuse measure in 2012 by then Finance Minister Pranab Mukherjee, but now it hindered seriously the development and expansion of start-ups.

The new notification from DPIIT raised the investment limit for 'angel tax' exemption to Rs 25 crore as compared with Rs 10 crore earlier. An entity will now be considered a start-up for 10 years from its date of incorporation and registration as compared to seven years earlier, which will allow it to avail tax benefits for a longer period. The change in definition will also see firms with up to Rs 100-crore annual turnover to be considered a start-up as compared to Rs 25 crore earlier.