Government Scraps Angel Tax to Boost Foreign Investments in Startups

The Indian government has removed the angel tax for all classes of investors, a move that is expected to enhance foreign investments and strengthen the startup ecosystem. This decision addresses the long-standing issue of taxing investments rather than income and aims to reduce disputes and litigation, thereby fostering innovation.

In a significant move to promote foreign investments, the Indian government has scrapped the angel tax for all classes of investors, according to top officials.

Rajesh Kumar Singh, Secretary of DPIIT, emphasized that the decision will not only attract foreign investments but also strengthen the country's startup ecosystem, which is one of the largest in the world.

'It was an ease of doing business issue as well as a tax issue. Investments should not get taxed,' Singh explained, addressing the rationale behind the move.

Known as the angel tax, this levy was a 30% income tax on funding raised by startups if their valuation exceeded the company's fair market value. The removal aims to reduce disputes and provide policy stability, helping entrepreneurs raise funds without relocating abroad.

Commerce and Industry Minister Piyush Goyal noted that the reform will specifically benefit emerging sectors like deeptech, AI, and clean energy, which require substantial early-stage capital.