News Post

Is Angel Tax removal half baked relief for startups?

Entrackr · 1m

The Indian startup ecosystem has been rejoicing the removal of Angel Tax but the relief is not retrospective. This essentially means that angel investments made before April 2024 are subject to 30% upfront tax. If the removal is limited prospectively, this is half-baked relief as startups, investors and other stakeholders have been fighting for removal of Angel Tax completely including retrospective investments. “This (retrospective angel tax) is a big issue which needs to be solved holistically and must include investment between 2012 and 2024,” said one of the startups who got notice from Income Tax on valuation premium. “However, there is a broader feeling in the ecosystem that startups will not get income tax notices on share premiums now.” India implemented angel tax in 2012 to help tackle unaccounted money raised through capital received from resident investors in a closely held company in excess of the fair market value. Experts outlined that things have undergone a sea change since then with the UPA government which made the Angel Tax rule also open to its complete removal. “The abolition of the Angel Tax from FY25 is a positive step, but its limited scope will continue to be a headache for startups who would remain to suffer from the ramifications of past tax assessments,” said an angel investor who backed over five dozen startups in the past. The abolishment of Angel Tax does not address the pain of startups who have been fighting these cases for years. Entrackr also received such notice on Angel Tax which we have been contesting with Income Tax authorities since October 2023. While other markets globally have preferred to lay down ground rules for early-stage valuations, India probably stands alone with its Angel Tax (retrospective).