The angel tax has been one of the biggest concerns of most entrepreneurs and investors. Good relief as the government will do away with the angel tax, announced Finance Minister Nirmala Sitharaman on Tuesday, 23rd July, 2024, while presenting the Union Budget 2024-2025. The act imposed a 30% tax on investment by outside investors, popularly referred to as ‘angel’ investors. It was thus seen as a major hurdle to seeking funds for start-ups.
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In fact, the government had earlier even mooted bringing foreign investments under the ambit of this tax, whereby any excess premium would have been deemed as “income from sources” and taxed up to 30 per cent. Start-ups registered with the Department of Promotion of Industry and Internal Trade (DPIIT) were, however, exempt.
One of the prolific angel investors who also run a micro-VC firm, stated that the very basic idea behind the abolition of angel tax is to give a positive fillip to the startup ecosystem in India, promote entrepreneurship, and support innovation. In fact, a start-up community of entrepreneurs, investors, and venture capitalists is infused with new excitement regarding the count.
K Ganesh, serial entrepreneur and an investor in several unicorns and startups, just expressed his relief through social media at this abolishment, a move he called long due. He believed that it would cause less harassment and less headache of the tax.
According to him, this would lessen the “tax terrorism” that startup founders and angel investors have been going through.
The angel tax was introduced in 2012 to stem unaccounted money raised in the form of capital received from resident investors in closely held companies. Over time, it became a bane to genuine investors and startups.
Its elimination is being viewed as something that will help attract new investors, and that too, particularly from smaller cities. One prolific angel investor commented that it would provide a fillip to early-stage startup investments in the country. Now, entrepreneurs can attract money from new asset classes, which is really good news.
Among other prominent supporters for the abolition of the angel tax is Kunal Bahl, a co-founder of Titan Capital, Kushal Bhagia, the founder of All In Capital, along with Deepak Shenoy, the founder of Capital Mind, plus former Finance Minister P Chidambaram.
In essence, doing away with the angel tax brings a lot of relief to investors and startups at large. This certainly is one bright move that shall make sure India is a more vibrant and helpful ecosystem for startups. So, all you investors or the founder of any startup, it’s time for a party!
