Recognised startups spared Section 68 scrutiny, others under watch: CBDT

The Central Board of Direct Taxes (CBDT) has clarified that startups recognised by the Department for Promotion of Industry and Internal Trade (DPIIT) and compliant with required declarations will not face scrutiny under Section 68 of the Income-tax Act, 1961, for foreign investments. Investments in such entities are exempt from tax-related questioning under this provision, which deals with unexplained credits, the Board said.

 

"Recognised startups that fulfil the conditions laid down in Notification No. G.S.R. 127(E) of DPIIT dated February 19, 2019, and file declaration in Form-2, are eligible for various tax exemptions and deductions under the Income-tax Act, 1961. Investments made in such companies are eligible for benefits and are not subject to scrutiny," CBDT said on X in response to tax lawyer Ajay Rotti’s post on X.

 

However, the tax department added that the investments in companies that do not meet the necessary conditions may be "examined" based on the risk management strategy followed by the department.

 

The clarification comes amid income-tax notices issued to startups for foreign funding routed via Singapore. The issue gained traction after tax expert Ajay Rotti flagged concerns in a podcast discussion, where he referred to a Business Standard report highlighting the department’s use of Section 68 to demand investor documentation for past funding received over the last five years.

 

Industry experts had earlier cautioned that overuse of Section 68 could deter genuine foreign investors and increase litigation, especially in cases involving older transactions.

 

Govt dismisses claims of GST on UPI transactions over ₹2,000

 

The government on Friday denied reports suggesting a proposal to levy Goods and Services Tax (GST) on UPI transactions exceeding ₹2,000, calling them completely false, misleading and without any basis.

 

“The claims that the government is considering levying GST on UPI transactions over ₹2,000 are completely false, misleading and without any basis. Currently, there is no such proposal before the government,” the Ministry of Finance said in a statement.

 

The ministry clarified that GST is levied only on applicable charges like the merchant discount rate (MDR), which has been waived for person-to-merchant (P2M) UPI transactions since January 2020.

 

“Since currently no MDR is charged on UPI transactions, there is consequently no GST applicable to these transactions,” the statement added.