July 25, 2024

Why in news? –  Finance Minister proposed to abolish the angel tax for all investor classes while presenting the Union Budget 2024-25. The Origin of Angel Tax: – The idea of angel tax was first introduced in the 2012, Union Budget by then Finance Minister Pranab Mukherjee. What is Angel Tax? – Initially every new stablished company needs funds to perform its activity and seeks investment but having no tangible asset as collateral but equity, at this phase an angel investor can invest money in it. Investment greater than FMV (Fair Market Value) is categorised as “income from other sources”, and the tax imposed on it is called angel tax. Angel tax, formally as section 56(2) (vii b) of the income tax Act, is the tax imposed on funds raised by start-ups from angel investors. However, this implies only to fund that exceed the fair market value of the company. The Fair Market Value of a private company’s stock is the predicted value of one share of your company if your stock was available on the open market Why was angel tax introduced? – Angel Tax Exemption Startups made numerous pleas for this tax exemption, Government provide some relaxations in the 2019 Union budget, and stated that if the startup is registered under the DPIIT or Department for Promotion of Industry and Internal Trade, it would not be subject to such tax. There are some other criteria that your startup needs to fulfil to file angel tax exemption. Note- The Angel tax is being levied on startups at 30.9% on net investments in excess of the startup company’ Fair Market Value. Key issues with Angel Tax:- How does Angel Tax affect startup? – New major Government’s Initiatives Related to Start-up- Conclusion- The removal of the Angel Tax for Investors is a significant step that will strengthen the start-up ecosystem, encouraging more investment and fostering innovation. This change will significantly improve start-up funding sentiment while boosting the morale of deep tech and AI start-ups to take bigger bets. By focusing on skilling and employment the budget creates a favourable environment for tech companies to thrive.