Alerts:

Tax Alert: Clarification with respect to assessment of Startup Companies

08 August 2019

It has come to attention of Central Board of Direct Tax (the CBDT) that Startup’s have received notices under section 143(2)/147 of the Income-tax Act, 1961 (the IT Act) before and after the issue of notification[1] by Department for Promotion of Industry and Internal Trade (the DPIIT) in respect of applicability of section 56(2)(viib) of the IT Act. Subsequent to DPIIT notification, the CBDT had issued notification[2] reiterating that provisions of section 56(2)(viib) of the IT Act relating to issue of shares at a price greater than its face value shall not apply to shares of a Startup Company which fulfills the requisite conditions mentioned in notification issued by the DPIIT.

In order to provide clarification on this aspect, the CBDT has issued a circular[3] outlining the procedure for assessment to be followed by the tax officer of a Startup involving section 56(2)(viib) issues, which has been captured as follows:

This CBDT circular has provided clarification regarding the applicability of section 56(2)(viib) of the IT Act and procedure that has to be followed by the Tax Officers in the ongoing/upcoming assessment proceedings. Though an attempt has been made to put to rest the confusion that was created in the Startup community, the anxiety on legal backing to such a notification from DPIIT and the CBDT still continues.


[1] DPIIT Notification No. G.S.R. No.127(E) dated February 19, 2019.

[2] CBDT Notification No. 13/2019/F.No. 370142/5/2018-TPL (Pt.) dated March 5, 2019.

[3] CBDT Circular No. 16/2019 dated August 7, 2019.