The Union Budget 2024-25 offered a big boost for the Indian startup ecosystem as it abolished the \u2018angel tax\u2019\u2014a move that has bought cheers to both investors and startup founders. It also brings parity in taxation of both listed and unlisted securities.<\/p>\n
\u201cThis is the real Dream Budget for startups and is going to help bring a lot of domestic capital into the ecosystem,\u201d said Gopal Srinivasan, MD, TVS Capital. \u201cThe Angel tax caused enormous stress amongst early-stage startup investors and founders. It sent a message that the government \u201cfrowned\u201d upon start-ups, despite an administration that was gung-ho about promoting them. Dismantling the entire law on entry valuation is a bold move,\u201d he said. <\/p>\n
Both angel tax and parity in rate of LTCG tax between listed and unlisted securities has been the industry\u2019s demand for over a decade. This has led to hiccups in growth of domestic Alternative Investment Fund (AIF) pool, which is at around \u20b92.5 trillion- just one-tenth of the Indian equity mutual fund pool. <\/p>\n
\u201cScarce domestic capital, largely from private individuals and families, faced friction due to higher LTCG for fund managers and startups in attracting this capital,\u201d Srinivasan added. <\/p>\n
Siddarth Pai, Founding Partner, 3one4 Capital, said that IVCA\u2019s advocacy efforts have been recognised in this Budget. <\/p>\n
\u201cCompanies raising capital from April 1, 2024 onwards won\u2019t have to suffer the threat of angel tax. The extension of the tax to foreign investors in previous years had resulted in a massive drip in funding,\u201d he added. <\/p>\n
The move is set to enhance startup funding from both domestic and international sources <\/p>\n
\u201cEliminating the angel tax is a significant milestone for India\u2019s startup community. This change is anticipated to boost investor confidence and speed up the flow of capital, fuelling innovation and growth in our startup ecosystem,\u201d said Sateesh Andra, Founder and Managing Director, Endiya Partners.<\/p>\n
Angel tax refers to the income tax levied by the government on funding raised by unlisted companies, or startups, if their valuation exceeds the company\u2019s fair market value. The tax impacts angel investment the most and therefore is called the angel tax. <\/p>\n
Under Section 56(2) VII B of the Income Tax Act, the premium received on the sale of shares to a foreign investor is considered \u2018income from other sources\u2019 and therefore, taxed accordingly. The move will be a boost for over 1,41,000 DPIIT-registered startups in the country. <\/p>\n
\u201cAngel Tax abolished! This is one of the boldest moves made by the Finance Minister. It will be a big boost to the startup world and\u00a0a\u00a0game\u00a0changer. In addition, the space economy will get a boost with a VC fund of \u20b91000 crore. Overall, it is a balance budget with a broad brush covering thrust on employment, skilling, infrastructure. It will greatly boost economic activity and will aid in\u00a0job\u00a0creation,\u201d said Ninad Karpe, founder and partner, 100X.VC.<\/p>\n