Startups get much awaited tax exemptions

"It has been a long standing industry demand to abolish this Angel tax," Maheshwari said.

A startup is a company in which the public are not "substantially interested" and conforms to certain conditions as prescribed by the Department of Industrial Policy and Promotion (DIPP) in February this year.

Under Indian tax law, if an Indian company receives share subscription amount from an Indian resident which exceeds the fair value of shares, then the excess amount is taxed as income of the Indian company, said Rajesh H Gandhi, Partner, Deloitte Haskins and Sells LLP.

"The notification now exempts startups from this rigorous provision. This is a welcome relaxation and would ensure that startups can issue shares to investors at higher than fair value without worrying about any tax consequences," Gandhi said.

A similar exemption already exists for Venture Capital Funds (VCFs).

Maheshwari said this Angel tax still poses threat to earlier investments which could be perceived as being overvalued in light of the declining valuations globally and in India.

Last week, the DIPP has launched a portal and mobile app through which startups can gather all latest updates on various notifications, circulars issued by various departments and different funding agencies.

In January, Prime Minister Narendra Modi had unveiled a slew of incentives to boost startup businesses, offering them a tax holiday and inspector raj-free regime for three years, capital gains tax exemption and Rs 10,000 crore corpus to fund them.