DBT Bureau
Bengaluru, 23 July 2024
The startup ecosystem gets a huge boost in India as the Union Budget announced by the Finance Minister has proposed to abolish the controversial Angel Tax for all classes of investors.
This move is likely to increase fund flow into Indian startups at a time when the whole ecosystem is going through a severe funding winter.
“To bolster the Indian startup ecosystem, boost the entrepreneurial spirit, and support innovation, I propose to abolish the so-called angel tax for all classes of investors,” Finance Minister Nirmala Sitharaman said in her Union Budget 2024 speech.
Angel tax is imposed on unlisted startups when they sell their shares to investors at a valuation which is higher than the fair market price. As there is single method of determining the fair value, it has led to several cases of exorbitant taxation demand on many startups by the tax authorities.
Most startup founders have been demanding the abolition of this tax since its imposition in 2012.
“Earlier start-ups were allowed a tax exemption from Angel tax subject to certain conditions such as the amount of share capital and securities premium post fund raise does not exceed Rs 25 crore, the end-use restrictions on funds raised by start-ups such as no investments in financial assets etc., and a requirement to submit declaration in Form 2 to DIPP. The abolition of angel tax provisions will now enable start-ups to raise funds without any such conditions and compliance requirements. This amendment is applicable from AY 25-26,” Anish Shah, Partner, M&A Tax and Regulatory Services, BDO India said.
The Union Budget also announced that the TDS rate on e-commerce will be reduced to 0.1% from current 1%. This is likely to boost the ecommerce sector, which is growing at a fast pace.
