The government's much-lauded decision to repeal the controversial 'angel tax' may not benefit startups because of the strings attached to the new regulation, industry leaders have said, reported ETtech. Tax on investments in startups, was considered regressive by all quarters and seen as one of the prime reasons for exodus of startups and intellectual property from the country.

The effect of the CBDT’s notification is that in case a startup gets investment from resident angel investors, family offices or funds which were not registered as venture capital funds, it will not be taxed even if the investment is made in excess to the fair value.

But only firms classified as startups under the new government regulations will be eligible for the tax exemption or other taxation-related benefits.

Startups would need to get a certificate from the Inter-ministerial Board of Certification to get the 'startup' stamp, thereby fulfilling criteria such as not more than five-year old company, turnover not exceeding Rs 25 crore, working towards innovation and commercialization of new products or services, and driven by technology or intellectual property.

There aren't many startups that have gone for this certification yet. Also, the new regulation will not apply to retrospective investments and they will still be questioned by tax authorities.