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Angel tax is levied on the capital raised via the issue of shares by unlisted companies from an Indian investor if the share price of issued shares is seen in excess of the fair market value of the company read more
 "Budget 2024 abolishes 'angel tax' for all classes of investors")
Finance Minister Nirmala Sitharaman presenting Union Budget 2024-25. Source: Screengrab/SansadTV
In a good news for start-ups in India, Finance Minister Nirmala Sitharaman presenting the Budget 2024 has announced that government has abolished angel tax.
“I propose to abolish angel tax for all investor classes,” FM Sitharaman said.
There was a strong demand by venture capitalists and industry experts for the removal of angel tax to further promote a more conducive environment for startups in India.
In 2023 Budget, a change was introduced in the angel tax provision which raised concerns about startup investments in the country by foreign investors. This is because an exemption for money raised from foreign investors under the angel tax regime was done away with in the Finance Bill, 2023. However, the exemption for investments made by SEBI-registered alternative investment funds still continued.
What is Angle Tax?
The angel tax regime was in 2012 as an anti-abuse measure to prevent money laundering.
It mandated that a startup’s fundraise could be taxed whenever the funding round happened at a valuation more than the fair value of shares – as determined by a merchant banker.
Startups and investors over the years have raised an alarm about being troubled by the taxmen due to the provision even in the case of genuine investments.
In 2019, the government made a concession that DPIIT-registered start-ups would be exempted from the provision. But, the fine print showed that it was not a blanket exemption for all such start-ups. It applied only to those certified by another government body called Inter-Ministerial Board (IMB).
‘Angle Tax abolishment was long pending’
“Angel Tax abolishment was long pending, glad that Finance Minister Sitharaman has heard industry voices and has finally abolished it. This will certainly help in expansion of angel investment in India and will take away a lot of burden from the minds of everyone on tax notice for tax paid investment. This will also free up a lot of domestic capital and improve the funding sentiment in a strong way,” Anil Joshi, Managing Partner, Unicorn India Ventures said.
“The biggest take away from the Budget is removal of angel tax. This will lead to ease in raising funding for early stage founders and will encourage more early stage investors and angels to look at startup investing as a fruitful asset class. In our view, this single announcement is a small step in the direction of making angel investment accessible for people with investment corpus which currently goes to markets and mutual funds,” said Manoj Agarwal, Managing Partner, Seafund.
Meanwhile Sumit Singhania, Partner, Deloitte India on Angel tax said, “One big takeaway from tax proposals announced in the budget this year is claw back of angel tax levy. Definitely, a positive move that helps reset not only the tax cost matrix for investors in start up as well as for foreign strategic investors, it also puts out a progressive view of tax policy making by the government. Since this levy has stinged for more than a decade since it was introduced in 2012, withdrawal of angel tax entirely means a timely course correction as the government rolls out red carpet for long term strategic investment as well more risk-capital to promote innovation and R&D.”
With inputs from agencies
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English (US) ·