The recent Budget has put forth a proposal to eliminate the Angel Tax, providing relief to investors and start-ups. However, since the announcement is not retroactive, individuals who invested earlier will still face a 30% tax. Additionally, there is a plan to establish a venture capital fund for start-ups operating in the space industry.
Under Section 56(2)(viib) of the Income Tax Act, 1961, investments obtained by start-ups from external investors as “income from other sources” are taxed at a 30% rate. The Angel Tax was introduced in India in 2012 to address the issue of undisclosed funds received from domestic investors in a closely held company exceeding its fair market value.
Archana Jahagirdar, Founder & Managing Partner of Rukam Capital, expressed that the removal of this tax has been a longstanding demand of the start-up community, especially in light of concerns raised by foreign investors regarding investments in Indian start-ups.
Despite the Budget proposal for 2024-25, the removal of the Angel Tax will not apply to past investments, meaning that investments made before April 2024 will still be subject to a 30% tax. This limited scope of relief has been criticized as insufficient by stakeholders advocating for the complete abolition of the Angel Tax, including for retrospective investments.
Furthermore, the government has announced the establishment of a Rs 1,000 crore venture capital fund to support start-ups in the space sector. The Finance Minister highlighted the goal of expanding the space economy fivefold in the next decade, emphasizing the significance of this venture capital fund in achieving that target.
Leave a comment