In a significant move for the Indian startup ecosystem, Finance Minister Nirmala Sitharaman has announced the removal of the Angel Tax. This tax, levied under Section 56(2)(viib) of the Income Tax Act, 1961, targeted unlisted companies raising capital through share issuance from Indian investors. The tax applied when the share price exceeded the company’s fair market value, with the excess deemed as income and taxed at a 30% rate.
Introduced in 2012, the Angel Tax aimed to curb the use of unaccounted money in investments. However, it faced criticism from venture capitalists and industry experts, who argued that it hindered the growth of startups by creating an unfavorable investment climate. The removal of the Angel Tax is expected to significantly benefit startups by simplifying their fundraising process and attracting more investors. This move aligns with the government’s commitment to fostering a robust startup ecosystem in India. By eliminating this tax burden, the government aims to create a more conducive environment for innovation and entrepreneurship, ultimately boosting the Indian economy.
