BUDGET 2024-25: Leg-up for startups, angel tax abolished

Vijay C Roy

New Delhi, July 23

Finance Minister Nirmala Sitharaman’s Budget speech on Tuesday announced the abolition of the contentious angel tax for all classes of investors, heeding a demand of Indian startups. She also announced a venture capital fund of Rs 1,000 crore for startups in space economy.

Angel tax applies to unlisted companies in India when they raise capital by issuing shares to investors at a price exceeding a company’s fair market value. The excess amount is treated as income and taxed at a rate above 30 per cent.

“To bolster the Indian startup ecosystem, boost entrepreneurial spirit and support innovation, I propose to abolish the so-called angel tax for all classes of investors,” she said, prompting the investor community to welcome the decision. Soumyadip Roychoudhury, tax and regulatory partner, MSKB, said: “The abolishment of the angel tax for all classes of investors is a major relief for startups. This will remove the uncertainty in space and will also bring in more investments, which is an important factor for expansion.”

According to Pradeep Gupta, executive director and head of investment, Lighthouse Canton, the angel tax was punitive in more ways than expected. The abolition of this tax takes away financial burden, will enhance overall systemic liquidity and is well poised to offer the necessary boost to our startup eco-system. The startup founder feels that the proposal to abolish the angel tax will play a key part in facilitating an environment that boosts investments and ease of doing business. They expect robust implementation of initiatives proposed to enable a strong environment fostering deep technology investments in the country.

Anil Agarwal, chairman, Vedanta Ltd, said the abolition of the angel tax would give a big boost our startups and young entrepreneurs, “who are the job creators of the future”. The commitment to speed up IBC resolution will lead to 12,000 businesses restarting operations and many more jobs.

Was introduced in 2012

• The idea of the angel tax was first introduced in the 2012 Budget by then Finance Minister Pranab Mukherjee. The primary objective was to check money laundering practices through investments in startups and catch bogus firms after advent of such cases.
• The angel tax is levied on the capital raised via the issue of shares by unlisted firms from an Indian investor if the price of issued shares is seen in excess of the fair market value of the company. The excess realisation is considered as income and, therefore, taxed accordingly.