Budget 2024: Centre Abolishes Angel Tax, Major Boost for Startup Ecosystem
- ByStartupStory | July 23, 2024
In a significant move to bolster the Indian startup ecosystem, Finance Minister Nirmala Sitharaman announced the abolition of the angel tax on all asset classes during her presentation of the Union Budget for 2024-25 on Tuesday. The angel tax, formally known as Section 56 (II) (viib) of the Income Tax Act, was applicable to any consideration of share issuance that exceeded the fair value of shares issued by privately-held companies. This tax will be abolished effective April 1, 2025, applicable from the assessment year 2025-26.
The angel tax was first introduced in the 2012 Union Budget by then Finance Minister Pranab Mukherjee to curb money laundering. It levied a tax of around 30% on capital raised by unlisted companies from Indian investors if the share price exceeded the company’s fair market value. This move had been a longstanding hurdle for startups seeking to raise funds, as it created additional tax burdens and complications.
Finance Minister Sitharaman’s announcement has been met with widespread approval from the startup and venture capital communities. “We welcome the abolition of the 30% Angel Tax for all investor classes. This move will encourage more angel investors to support startups, fostering innovation and growth in the startup ecosystem,” said Anil Bakshi, CEO & Founder of Startup Story.
Anil Joshi, Managing Partner at Unicorn India Ventures, also praised the decision, stating, “Angel Tax abolishment was long pending. This will certainly help in the expansion of angel investment in India and take away a lot of burden from the minds of everyone on tax notices for tax-paid investment. This will also free up a lot of domestic capital and improve the funding sentiment in a strong way.”
Mahankali Srinivas Rao, CEO, T-Hub, “Budget 2024 marks a significant milestone for the Indian startup ecosystem, with initiatives that will undeniably foster innovation and growth. The abolition of the Angel Tax for all classes of investors is a pivotal move that will create a more supportive environment for angel investments, ultimately benefiting startups and paving the way for India to become a global innovation hub. The establishment of a Rs 1,000 crore venture capital fund dedicated to boosting the space sector is another forward-thinking initiative. This substantial investment will propel growth in the space economy by supporting innovative startups and groundbreaking research, positioning India at the forefront of space technology and exploration. At T-Hub, we are excited about these developments and the positive impact they will have on our vibrant startup ecosystem. These initiatives will provide startups with the necessary resources and support to thrive, innovate, and contribute significantly to India’s economic growth and technological advancement.”
The removal of the angel tax is seen as a crucial step in making India a more attractive destination for global investors. “The elimination of the angel tax will significantly benefit small and medium enterprises (SMEs), emerging brands, startups, and our GetVantage portfolio brands. This decision is expected to attract more investment and create a more favorable environment for innovation and growth in these sectors,” commented Bhavik Vasa, Cofounder of GetVantage.
Mayuresh Raut, Managing Partner at Seafund, added, “Removal of this dreaded tax will give a huge fillip to startups in the country and free up investors to focus on their investments without having anxiety about how to deal with their implications.”
The Finance Minister’s budget also included other measures to support the startup ecosystem, such as a ₹1,000 crore fund of funds for space tech, which is expected to mobilize over ₹4,000 crore. This move underscores India’s commitment to fostering innovation and providing early-stage capital to breakthrough solutions in sectors like space tech.
Anirudh A Damani, Managing Partner at Artha Venture Fund, noted, “The removal of the angel tax will make it significantly easier for us to complete transactions faster and streamline the investment process. This simplification allows us to focus on our primary job—investing in and supporting innovative startups—without the burden of navigating through cumbersome tax regulations.”
Rohit Pateria, Co-Founder of Lark Finserv, highlighted the broader impact of this move: “One of the most significant announcements in the Budget 2024-25 is the abolition of the Angel Tax. This move is expected to provide major relief to startup investors, fostering a more conducive environment for investment. Over the years, the government has introduced several measures to nurture the country’s startup ecosystem, which has now grown to become the third-largest globally. Additionally, India ranks high in innovation quality among middle-income countries, reflecting the success of these initiatives. Another important change is the definition of eligible startups, which has been updated to include entities incorporated between April 1, 2016, and March 31, 2025. This adjustment will allow more startups to benefit from tax holidays, further encouraging entrepreneurial activities and innovation.”
Ankur Mittal, Co-founder of Inflection Point Ventures, also expressed optimism: “While we have to still read the complete change on the abolishment of angel tax, but on the face of it, this action has the ability to bring a lot of regulatory clarity which generally is appreciated by the investor communities across the world. This should help founders looking to raise capital both in domestic and international markets.”
“Assessing Fair market value for startups has always been complex and challenging. Abolition of angel tax comes both as a long awaited relief and a shot in the arm to the Indian startup ecosystem. The move will encourage flow of foreign capital, reduce tax harassments and foster a more conducive environment for entrepreneurship.,” Adith Podhar, Founder of Gemba Capital.
Kuldeep Mirani, Co-Founder and CEO, BeyondSeed: “We greatly appreciate the government’s recent Budget announcements supporting the startup ecosystem. Abolishing the Angel Tax for all investors is a promising step that will boost investment confidence and capital inflow into budding enterprises. Simplifying norms for foreign direct investment (FDI) and overseas investment will also improve the ease of doing business in India. The emphasis on using the Indian Rupee for overseas investment is a strategic move that could elevate our currency’s global standing. These reforms send a positive signal to investors and reflect a strong commitment to creating a conducive investment environment. We thank the government for these efforts and look forward to continued collaboration to ensure these initiatives lead to sustained growth and a thriving startup landscape.”
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