Boosting Startups: Government Eliminates Angel Tax for All Investors

The removal of angel tax, announced by Commerce and Industry Minister Piyush Goyal, is set to attract more investments into emerging sectors such as deeptech and artificial intelligence. This tax relief aims to boost the startup ecosystem by eliminating a 30% income tax on excess startup valuations, thus promoting growth.

The government has taken a significant step to bolster the startup ecosystem by announcing the removal of angel tax for all categories of investors. According to Commerce and Industry Minister Piyush Goyal, this move is expected to attract more investments, especially in emerging sectors like deeptech and artificial intelligence, which require substantial early-stage capital.

Angel tax, a 30% income tax on funds raised by unlisted companies exceeding their fair market value, has been a long-standing concern in the startup community. Section 56(2)(viib) of the Income Tax Act introduced this measure in 2012 as an anti-abuse provision but has since been criticized for hampering investment growth.

The removal of this tax comes after multiple representations from stakeholders and extensive studies by the Department for Promotion of Industry and Internal Trade (DPIIT). This decision is expected to infuse confidence among investors and reduce disputes and litigation, thereby providing tax certainty and policy stability.