The Startup Environment Receives a Significant Boost as the Centre Abolishes the Angel Tax

Nitin Konde, Apoorva Bajj

Jul 24, 2024 — 4 min read

Centre Abolishes the Angel Tax

Finance Minister Nirmala Sitharaman announced on Tuesday 23 July, during the presentation of the Union Budget for 2024-25, that the government has proposed to repeal the angel tax on all asset classes. This move will greatly benefit the startup environment. Angel tax, which is a provision in the Income Tax Act known as Section 56 (II) (viib), applies to privately-held companies where the consideration for the issuance of shares exceeds their fair worth. Following the budget announcement, the changes to the angel tax system will take effect on April 1, 2025, and they will be relevant for the assessment year 2025–26. The startup and VC community has long advocated for the elimination of angel tax.

Industry’s Reaction

"The Union Budget 2024 is a significant step forward for India's growth, focusing on empowering women in the workforce, supporting employee welfare, and driving innovation. The allocation of over INR 3 lakh crore for schemes benefiting women and girls, along with new initiatives like skilling programs and salary support for first-time employees, highlights the government’s commitment to gender inclusivity and employment generation," stated Swati Bhargava, Co-Founder of CashKaro.

She elaborated further by stating that eliminating the angel tax for all investors is a huge win for businesses, creating an environment that is more creative and dynamic. For online companies, a significant step towards tax relief and economic expansion has been the lowering of the TDS rate on online purchases from 1% to 0.1%. Further evidence of progressive tax policy is the plan to decriminalize TDS delays until the tax return is filed and the six-month-long examination of the customs duty structure. All things considered, these steps will lead India into a better and more inventive future by boosting growth and development in the economy.

Echoing similar sentiments, Megha Gambhir, Founder and CEO at Stupa Sports Analytics said, "The removal of angel tax is a big boost for the Indian startup ecosystem, and will make the path for startups like ours easier, so we can focus on building innovative tech solutions without previous financial burdens. Additionally, the announcement of investing in sports infrastructure in states like Bihar is positive news to continue developing sports at the grassroots level in our country. This will eventually lead to more facilities, academies, and sports centers integrating cutting-edge tech solutions in the coming years, and transform the way sports are played, viewed, and organized"

Pramod Gummaraj, Founder of Aprecomm opined, "The proposed abolishment of angel tax is a landmark decision that will significantly boost the Indian startup ecosystem. By removing this hurdle, the government is encouraging early-stage investments and fostering a conducive environment for innovation. This move will be particularly beneficial for sectors like technology and telecom, where funding plays a crucial role in driving research and development."

Adding further to his comment, he said that the telecom industry also welcomes the renewed emphasis on city planning. Strong and dependable communication networks are becoming more important as cities develop and thrive. Opportunities for telecom software as a service (SaaS) providers like Aprecomm to aid in citywide digital transformation and better residents' quality of life will arise as a result of investments in urban development.

"We also welcome the abolition of the 30% Angel Tax for all investor classes. This move will encourage more angel investors to support startups, fostering innovation and growth in the startup ecosystem," said Manish Aggarwal, CEO & Founder, of FINQY.

Vidita Kochar, Co-founder at Jewelbox said, "The recent reduction of customs duty on gold to 6% marks a significant advancement for the jewelry industry, enhancing its competitiveness and making it more accessible to consumers. This move aligns seamlessly with our commitment to providing high-quality, affordable lab diamond jewelry to our customers. Additionally, the abolition of the angel tax is a laudable initiative that will invigorate India’s startup ecosystem. This change is poised to spur innovation, attract global investors, and provide a substantial boost to startups. We are confident that these measures will significantly contribute to the growth and dynamism of both the jewelry sector and the broader startup community in India."

Gunjan Agarwal, Co-founder of XYST commented, “Abolishing Angel Tax will have a long-term impact on startup founders. This will not only motivate angel investors but also help to encourage entrepreneurial spirit in the Indian business domain. Additionally, the job generation push, coupled with the government’s financial assistance will help startups acquire more talented professionals, leading to cumulative growth in the long term. This Union Budget is full of opportunities for Indian startups pushing to become the next Unicorn, and governmental assistance is bolstering it to ensure success and growth."

Mahankali Srinivas Rao (MSR), CEO, T-Hub stated, "Budget 2024 marks a significant milestone for the Indian startup ecosystem, with initiatives that will undeniably foster innovation and growth. The abolition of the Angel Tax for all classes of investors is a pivotal move that will create a more supportive environment for angel investments, ultimately benefiting startups and paving the way for India to become a global innovation hub. The establishment of a INR 1,000 crore venture capital fund dedicated to boosting the space sector is another forward-thinking initiative. This substantial investment will propel growth in the space economy by supporting innovative startups and groundbreaking research, positioning India at the forefront of space technology and exploration."

In 2012, India implemented an angel tax to combat the problem of unreported wealth, namely that which arises when a closely held company receives funding from Indian investors that exceeds its fair market worth. Not only will this measure bring tremendous relief to existing investors, but it will also attract new investors due to the easing of taxes.