Abolition of angel tax would be very beneficial for the Indian startups. But before I discuss the impact of angel tax on Indian startups, it would be appropriate to answer what is angel tax?
Angel Tax is a tax imposed on Indian startups receiving funding from angel investors on the fair market value. Angel tax in India before Union Budget 2024 was 30% of the fair value of the startups. Angel tax was introduced in the Union Budget 2012 by then Finance Minister Shri Pranab Mukherjee.
For example, if the fair value of a startup is Rs 1 crore and it raises Rs 1.5 crore from angel investors, the excess amount of Rs 50 lakh is subject to this tax.
After abolition of the angel tax in India, the Indian startups will have access to the whole fund being received from the angel investors. This will make startups more lucrative as they can spend more money on core activities than paying taxes! It will encourage the angel investors to take more risks as chances of survival of the Indian startups will increase because of access to more funds. As a whole the abolition of angel tax will make the Indian startups ecosystem more lucrative to the investors.
Rajeev K Upadhyay
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