Sachin
Quick Summary
Introduction Angel Tax, introduced in 2012 under Section 56(2)(viib) of the Income Tax Act 1961, was a tax levied on startups receiving investments from angel investors when the amount raised exceeded the fair market value of the shares issued. Purpose The primary aim of Angel Tax was to prevent
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FAQ :
The Angel Tax was a tax introduced in 2012 on startups receiving investments from angel investors when the amount raised exceeded the fair market value of the shares issued. It was intended to prevent money laundering and the flow of black money.
The Angel Tax was controversial because startups struggled to justify their valuations to tax authorities, leading to legal disputes and financial strain. The rigorous scrutiny also burdened the investment process and deterred investors.
Yes, the Angel Tax was abolished as part of the Union Budget 2024-25, following lobbying from the startup community and investors.
Startups benefit by being able to raise funds without fear of punitive taxation on valuations. Angel investors, venture capitalists, and early-stage investors also benefit from fewer regulatory hurdles.
Before abolition, startups needed DPIIT recognition, had to ensure their total paid-up share capital and premium post-investment did not exceed ₹25 crore, and required a valuation report from a certified merchant banker.
Angel Tax posed challenges for foreign investors due to a lack of clarity and the risk of retrospective taxation, making India less attractive. Its abolition is expected to mitigate these concerns and improve India's appeal to international investors.
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