Budget 2024: FM Nirmala Sitharaman Abolishes Angel Tax to Boost Startups
Union Finance Minister Nirmala Sitharaman presented her seventh Budget, proposing to abolish the Angel Tax to foster innovation and entrepreneurship in India's startup ecosystem.
23 July 2024
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Savleen Kaur
The Finance Minister proposes to abolish the Angel Tax to support the Indian startup ecosystem.
The tax, under Section 56(2)(viib) of the Income Tax Act, imposed a 30% tax on investments above the "fair market value," creating financial and valuation challenges for startups.
Removing the Angel Tax aims to alleviate financial burdens, resolve valuation disputes, and encourage more investment in Indian startups.
Union Finance Minister Nirmala Sitharaman, presenting her seventh consecutive Budget in Parliament on Tuesday, announced the abolition of the Angel Tax. She emphasized that the Indian startup ecosystem is brimming with innovation and ambition, but the Angel Tax has often been a contentious issue.
“To bolster the Indian startup ecosystem, boost the entrepreneurial spirit, and support innovation, I propose to abolish the so-called Angel Tax for all classes of investors,” stated the finance minister.
The Angel Tax, contrary to its name, is not a tax incentive. It is a provision under Section 56(2)(viib) of the Income Tax Act, 1961, which classifies investments received by startups from external investors as "income from other sources" and taxes them at a rate of 30%.
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For young startups already struggling with limited funds, the Angel Tax adds a significant burden on top of operational costs. The tax on premiums above the "fair market value" of shares often leads to valuation disputes with tax authorities, further complicating matters.
This extra tax liability can deter investment, stifling the very innovation and growth that the government aims to promote. By abolishing the Angel Tax, the government hopes to encourage more investments in startups and foster a more supportive environment for entrepreneurship.
The move is expected to be a significant relief for the Indian startup community, removing a major hurdle that has been a point of contention for years.
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Budget 2024: FM Nirmala Sitharaman Abolishes Angel Tax to Boost Startups