The Ministry of Finance (MoF) on May 24, 2023, issued a notification regarding the exemption of certain startups from the applicability of Section 56(2) (vii b) under the Income-tax Act, 1961
This Notification shall come into force on April 01, 2023.
The following has been stated namely: -
• The clause (viib) of sub-section (2) of section 56 of the Income-tax Act, states that where a company, not being a company in which the public are substantially interested, receives, in any previous year, from any person [being a resident], any consideration for issue of shares that exceeds the face value of such shares, the aggregate consideration received for such shares as exceeds the fair market value of the shares:
Provided that this clause shall not apply where the consideration for the issue of shares is received by a company from a class or classes of persons as may be notified by the Central Government on this behalf
• It hereby notifies that the provisions of clause (viib) of sub-section (2) of section 56 shall not apply to the consideration received by a company for the issue of shares that exceeds the face value of such shares, if the said consideration has been received from any person, by a company which fulfills the conditions specified in para 4 notification number G.S.R. 127(E), dated February 19, 2019, which states the following namely: -
“A Startup shall be eligible for notification under clause (ii) of the proviso to clause (viib) of sub-section (2) of section 56 of the Act and consequent exemption from the provisions of that clause if it fulfills the following conditions namely: -
(i) It has been recognized by DPIIT under para 2(iii)(a) or as per any earlier notification on the subject
(ii) The aggregate amount of paid-up share capital and share premium of the startup after the issue or proposed issue of a share, if any, does not exceed, twenty-five crore rupees.
[Notification No. S.O. 2275(E)]
