Vinesh Kriplani & Harshita Jain

Time and again, it has been observed that the Department of Industrial Policy and Promotion (DIPP) and CBDT has been taking steps for resolving the Angel Tax Controversy. Several Notifications have been issued in the past, since the introduction of Section 56(2)(viib), with a view to provide relief to the funds raised by genuine Start-ups. Instead of frequently tweaking rules to address industry’s concerns, the government should scrap the levy to encourage entrepreneurs in India. For more insight on Angel tax, implications of Section 56(2)(viib) and the challenges faced by Start-ups, you may refer to our previous article with this regard-

Another notification has been issued by the Ministry of Commerce and Industry on 19th February 2019 (Notification No- G.S.R 127(E)).

Major amendments in this Notification:

  1. The definition of entities which can be considered as a Start-up has been amended. Following are the changes made to the definition:
  1. The Government has increased the age cap for start-ups from 7 to 10 years. Hence, an entity shall cease to be Start-up on completion of 10 years from the date of its incorporation / registration. The entity shall be eligible to be considered a Start-up only if it is incorporated as a Private Limited Company, Partnership Firm or a Limited Liability Partnership in India.
  • It has also revised the turnover limit for the entities from Rs. 25 crores to Rs. 100 crores. Therefore, every entity whose Turnover for any of the financial years has not exceeded 100 Crores shall be eligible to be considered a Start-up.
  • Another amendment is to do with the recognition of Start-ups. In order to receive recognition, the Start-ups will have to make an online application to Department for Promotion of Industry and Internal Trade (DPIIT). The DPIIT, after making some inquiries, will either recognise the eligible entity as a start-up or reject the application by providing reasons. Earlier, an application had to be made to the DIPP, which transmitted the same to the CBDT for approval.
  • Further, a Start-up will be kept off the radar of the provisions of Section 56(2)(viib) if it fulfils the following conditions cumulatively:
  1. It has been recognised as a Start-up by DPIIT;
  • Aggregate amount of paid up share capital and share premium of the Start-up after issue or proposed issue of shares, if any, does not exceed Rs. 25 Crores. Before the issue of the aforementioned notification, this limit was Rs. 10 crore. While computing the aggregate paid up share capital, shares issued to the following persons shall not be included-
  1. a non-resident;
    1. Venture Capital Company or a Venture Capital Fund; or
    1. Listed Company whose Net Worth on the last date of the financial year preceding the year in which shares are issued exceeds Rs. 100 Crores or the Turnover exceeds Rs. 250 Crores.
  • Start-up has not invested, for a period of 7 years from the end of the latest financial year in which shares are issued at premium, in assets such as building or land or both, loans and advances, shares and securities, capital of another entity, a motor vehicle, an aircraft, a yacht or any other mode of transport, jewellery or any other asset, unless such assets are held in the ordinary course of business.
  • Another amendment is that to claim an exemption under Section 56(2)(viib), a Start-up is now required to file a declaration to DIPP stating that it fulfils the aforementioned conditions, which shall then be forwarded to the CBDT. Prior to this notification, a Start-up had to make an application to the Board for approval on fulfilling certain conditions. 


The changes, in total, are a great move for the Start-ups. Section 56(2)(viib) has been a significant pain point for Start-ups. The amendment has increased the population of investors who will be exempted from the provisions of these sections making it easier for Start-ups to raise funds. Also, since the Start-ups have to only make a declaration and not an application to claim an exemption under Section 56(2)(viib), significant delays involved in obtaining the approval can now be avoided.