The government has abolished the angel tax that existed 12 years ago.
The Central Government has abolished the 12-year tax in Budget 2024. This tax was introduced in UPA-2. Which was installed at the start. This tax was named Angel Tax. Angel tax means the income tax levied by the government on funds raised by unlisted companies or startups if their valuation is higher than the fair market value of the company. In his budget speech, he also announced several changes in tax rates for e-commerce companies and certain financial instruments in terms of long-term capital gains.
Nirmala announced the abolition of angel tax
The Finance Minister said that firstly, to strengthen the Indian startup ecosystem, promote entrepreneurship and support innovation, I propose to abolish the angel tax for all categories of investors. Before the Union Budget, the Department for Promotion of Industry and Internal Trade (DPIIT) had recommended the removal of this levy for startups.
In September last year, the Income Tax Department notified new rules on angel tax. This includes the arrangement for valuation of shares issued to investors by unlisted startups. While earlier the angel tax was applicable only to local investors, its scope has been expanded to include foreign investments in the budget for the financial year 2023-24. Over 1.17 lakh startups are registered with the government. They are eligible for incentives under the government’s Startup India initiative.
read this too
What the experts say
Commenting on the announcement, Sumit Singhania, Partner, Deloitte India, said that it is a positive step as it will not only help in resetting tax cost calculations for investors in startups but also for foreign strategic investors. Lokesh Shah, Partner, Induslaw, termed it as a great announcement. He said that this is a big relief for Indian companies, especially startups. This is encouraging for investors and private equity/venture funds supporting Indian companies.
What is the angel tax?
The tax levied on a non-listed company which raises funds by issuing shares to investors is called angel tax. If this tax is levied on that premium, then the investors pay more than the actual price of the shares. This type of income is also called income from other sources. On which tax is also levied accordingly. This tax was introduced in the year 2012. The main objective of this tax was to prevent money laundering and black money. After the introduction of this tax, startups and investors protested a lot against this tax. However, the government has also given many exemptions and relief to the eligible startups.
