The Union Budget announcement is nearby and the Department for Promotion of Industry and Internal Trade (DPIIT) has recommended removal of the angel tax for startups. It is basically aimed to foster a more vibrant startup ecosystem in the country. However, it is currently under consideration by the finance ministry.
The angel tax was initially introduced to prevent money laundering. It is levied on the capital received by startups through the sale of shares and that exceed the fair market value. However, the tax was just applied to local investors. The 2023-24 Budget expanded its scope and included foreign investments too. Any excess premium is treated as ‘income from other sources’. It is thereafter taxed at rates exceeding 30%.
DPIIT Secretary Rajesh Kumar Singh emphasized the continued advocacy of the department for the removal of the angel tax for the startups. DPIIT-registered startups are currently enjoying exemptions from the new norms. However, the broader application of it still poses a significant challenge.
The push for an angel tax exemption is about immediate financial relief. It is to create an environment that encourages innovation and investment. Removing the tax means that the government could signal its commitment of supporting the startup ecosystem. It is true that the startups are potentially attracting more foreign investment.
