Angel Tax Abolition: A Boon for Indian Startups and Investors

The abolition of Angel tax is set to encourage investors and boost India's startup ecosystem, according to CBDT Chairman Ravi Agrawal. He assures existing legal mechanisms will address money laundering concerns. With Budget 2024-25 introducing this measure, the move aims to reduce litigation and provide policy stability.

The abolition of Angel tax for all classes of investors will prompt innovators and venture capitalists to invest more in startups, said CBDT Chairman Ravi Agrawal on Wednesday. He reassured that any instances of money laundering will be handled by existing legal mechanisms.

Agrawal emphasized that the removal of this tax will significantly boost the startup ecosystem in India. 'Please come forward, please invest as the country is waiting for your investment, initiatives, and innovations,' he urged the community in a post-Budget interview with PTI.

When queried about potential money laundering through investor funds, Agrawal stated that violations with funds from 'undisclosed' sources will be addressed by the relevant statutory provisions. The tax administration will collaborate with sister agencies like the Enforcement Directorate if needed, he assured.

'The intention was never to dissuade startups or hinder investments. We had provided relaxations in coordination with the DPIIT,' Agrawal added, explaining that this measure is expected to motivate startups and angel investors, ultimately benefiting the country.

The removal of the Angel tax in the Budget 2024-25, presented by Union Finance Minister Nirmala Sitharaman, has been lauded by experts as a relief to startups. This tax, imposed on funding raised by unlisted companies when their valuation exceeds the fair market value, was seen as a deterrent to investment.

The Budget proposal also aims to reduce disputes and litigation, thereby providing tax certainty and policy stability. Section 56(2)(viib) of the Income Tax Act, introduced in 2012 as an anti-abuse measure, treats amounts raised by startups over their fair market value as taxable income from other sources.

The DPIIT, under the Commerce and Industry Ministry, is responsible for recognizing startups, currently numbering about 1.44 lakh.

(With inputs from agencies.)