India’s startup ecosystem is expanding at a rapid pace. It needs to be accelerated further to rank well in the global landscape. This is the reason the government announced abolition of the angel tax in its Union Budget 2024-25. Union Finance Minister Nirmala Sitharaman placed the budget on Tuesday in the Lok Sabha.
Angel tax was introduced in 2012. It is a tax imposed on the funding of angel investors made to startups and the investment amount should exceed the fair market value of the startup’s shares. It was intended to curb money laundering through investments in unlisted companies at inflated valuations. However, the tax created substantial challenges for the startups. Early-stage investments often rely on future potential and not the current value. Hence, startups found difficulties in justifying valuations. Moreover, they were to face hefty tax liabilities.
Venture capitalists demanded for the abolition of the angel tax for years. Experts have called for a more supportive environment for startups in the country. It is expected that the scrapping of angel tax could be a relief for investors.
Unicorn India Ventures managing partner Anil Joshi expressed satisfaction with the decision. He stated that the abolishment was long pending and he is glad to know that the Finance Minister has heard the industry voice.
Joshi added that the abolition will certainly help in the expansion of angel investment in India and it will also take away a lot of burden from the minds of everyone on tax notice for tax paid investment. This will also free up a lot of domestic capital and improve the funding sentiment in a strong way.
