Startup ecosystem sweetened with abolition of angel tax

Finance Minister Nirmala Sitharaman announced the complete abolition of the angel tax in her presentation of the Union Budget 2024. The move was met with a unanimous hurrah from investors and startups alike.

She said, “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.”

Under Section 56, 2 (vii b) of the Income Tax Act, angel tax refers to the tax levied on a startup for funds raised by issuing shares to private investors. The incidence of the tax is on the amount assessed to be above a ‘fair valuation’ of the company. The tax was introduced to stop money laundering. Startups have been bristling for a while over the computation of “excess value”.

Milan Sharma, Founder and MD, 35North Ventures, said, “Angel tax has faced many backlashes since its inception, due to the fact that many startups in their early stages rely heavily on funding, which in turn isn’t easy to get.”

“It is a much-awaited move by the FM. This will boost the entire startup ecosystem and is viewed as pro-business and pro-innovation measures that will stimulate economic growth and job creation,” said Sandeep Agrawal, Director and Founder of Teamlease Regtech.

Mayank Kumar, co-founder and MD, upGrad, agreed, “By abolishing angel tax, the government has given a major fillip to the startup ecosystem, fostering more investments, growth, and innovation, and enhancing its capabilities to cater to global demands.”

“The abolition of the angel tax marks a significant milestone for India’s entrepreneurial landscape,” said Professor Srivardhini Jha, Chairperson, NSRCEL at IIM Bangalore.

However, some felt there could have been more. “The abolishment of angel tax is a relief for the startup ecosystem; it’s something that never made any sense, and I’m delighted to see the FM resolve this in a definitive manner. However, we were also hoping to see some more topics being addressed,” said Sanjay Swamy, Managing Partner, Prime Venture Partners.