Budget 2024: What Is Angel Tax? The Regime Abolished To Boost Startups And Entrepreneurs

Budget Announcements 2024: The repeal of the Angel Tax is expected to be a significant boost for over 141,000 DPIIT-registered startups in India.

FM Sitharaman announced that the Centre has abolished the Angel Tax.

Source : ABPLIVE AI

In her record seventh budget speech, Finance Minister Nirmala Sitharaman announced several measures aimed at supporting the start-up ecosystem in India. The most significant announcement for entrepreneurs was the abolition of the Angel Tax.

"To bolster the Indian start-up eco-system, boost the entrepreneurial spirit and support innovation, I propose to abolish the so-called angel tax for all classes of investors.," the Finance Minister said in her budget speech.

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What Is Angel Tax — A Levy On Excess Share Capital

Angel Tax is a term used to describe the income tax liability arising from the issuance of shares by unlisted companies to Indian investors at a price exceeding the company's fair market value. This tax is applicable when the share price is deemed higher than the company's actual worth, and the difference is treated as taxable income.

On promoting #Investment, #Employment & #SocialSecurity, Union Budget 2024-25 proposes:

👉 Angel tax for all classes of investors to be abolished, to bolster Indian start-up eco-system

👉 Corporate tax rate on foreign companies to be reduced from 40% to 35%

👉 Simpler tax… pic.twitter.com/MxHEQ6cBQU

— Ministry of Finance (@FinMinIndia) July 23, 2024

The concept of Angel Tax stems from Section 56(2)(VIIB) of the Income Tax Act, 1961, introduced by the Finance Act, 2012. This section considers investments in unlisted Indian companies above the fair market value as taxable income, categorising it under 'Income from other sources.' As a result, angel investors, who frequently invest in startups, are primarily affected by this tax. Angel Tax was only applied to investments made by resident investors, and its purpose is to ensure that companies do not undervalue their shares to avoid taxes.

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Boost For Start-Ups

Earlier, the Department for Promotion of Industry and Internal Trade (DPIIT) had also recommended the removal of the Angel Tax, the Economic Times reported. The repeal of the Angel Tax is expected to be a significant boost for over 141,000 DPIIT-registered startups in the country. These startups have claimed that the high tax rates made investing in startups unattractive to angel investors.

India Inc Welcomes Govt's Decision

Pranav Bhaskar, Partner at SKV Law Offices, welcomed the government's decision to abolish the Angel Tax, said: "This may provide a much-needed boost to investment in the startup ecosystem. It is likely to encourage investors to engage with startups, both domestic and international, and incentivize investing in entrepreneurial ventures."

Kunal Savani, Partner at Cyril Amarchand Mangaldas, echoed similar positive sentiments on the abolition of the Angel Tax, saying: "The abolition of the Angel Tax is a major win for the Indian startup ecosystem. For young companies, securing early-stage funding is crucial for growth and innovation. This should be especially helpful in attracting investment from outside India. Non-resident investors have been facing double the trouble in complying with the Angel Tax and FEMA valuation rules, after the recent extension of the Angel Tax regime to non-resident investors. This change simplifies things and makes India a more attractive destination for startup capital."