New Delhi [India], July 23: To bolster the Indian start-up eco-system, boost the entrepreneurial spirit and support innovation, Finance Minister Nirmala Sitharaman proposed to abolish the so-called angel tax for all classes of investors. This was a proposal from the industry for a long time, and this announcement will drive more investments towards startups in particular. Startups function as engines of economic growth, playing a crucial role in generating new jobs, ideas, products, and services.
Reportedly, DPIIT secretary Rajesh Kumar Singh had called for the removal of angel tax ahead of the Budget. The move to abolish the Angel Tax also drew rare praise from the opposition. Former Finance Minister P Chidambaram said " was pleased to hear that the FM will abolish the Angel Tax. Congress has pleaded for the abolition for many years and most recently in the Congress Manifesto on page 31."Also Read: Union Budget 2024: What Gets Cheaper and What’s Costlier? Check the List Here.
As per definition, angel tax refers to the income tax levied by the government on funding raised by unlisted companies, or startups, if their valuation exceeds the company's fair market value. This contentious tax typically impacts angel investment the most and therefore is called the angel tax. It was introduced in 2012 by the UPA government in order to detect money laundering practices and catch bogus startups.
In 2018, the government issued a notification to give exemption to startups under the relevant section of the Income Tax Act, in cases where the total investment including funding from angel investors did not exceed Rs 10 crore.
For the exemption, startups were also required to get approval from an inter-ministerial board and a certificate of valuation from a merchant banker, as per reports. The reduction or abolition of the Angel Tax is essential for better funding mechanisms, enabling more investments and fuelling growth, Founder of Fhero Accounting Solutions, Prashant Bothra, had noted days ahead of the Budget.
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