WEB Angel Tax: A Comprehensive Guide
What is WEB Angel Tax?
WEB Angel Tax, also known as Section 56(2)(viib) of the Income Tax Act, is a tax levied on the capital raised by startups from angel investors. This tax applies if the consideration received by the startup exceeds the fair market value of the shares issued.
Provisions of WEB Angel Tax
Under Section 56(2)(viib), the following provisions apply: * If the fair market value of the shares issued is less than the consideration received, the difference is taxable. * The tax rate is 30% (plus cess and surcharge). * The tax is applicable to all unlisted companies, including startups. * However, certain exemptions are available, such as investments made by incubators and accelerators.
Implications for Startups
WEB Angel Tax can have significant implications for startups, as it can discourage angel investments and hinder their growth. Startups often rely on angel funding to supplement their seed capital and scale their operations. The tax can make it more expensive for them to raise capital, potentially affecting their ability to compete in the market.
Conclusion
WEB Angel Tax is a complex and controversial issue that has impacted the Indian startup ecosystem. While the government aims to curb tax avoidance, it is essential to ensure that regulations do not stifle innovation and entrepreneurship. Ongoing discussions and revisions of the law are aimed at finding a balance between tax collection and promoting a supportive environment for startups.
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