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Angel Tax was a law that taxed funds raised by startups from angel investors if they exceeded the fair market value of the company.
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The tax was introduced in 2012 to prevent money laundering but was criticized for being unfair and hurting genuine startups.
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The removal of Angel Tax in Budget 2024 is expected to boost the startup ecosystem by attracting more investors and promoting entrepreneurship.
Angel Tax, also known as Section 56 (2) (vii b) of the Income Tax Act, was a law that taxed funds raised by startups from angel investors if they exceeded the fair market value of the company. The tax was introduced in 2012 to prevent money laundering but was widely criticized for being unfair and hurting genuine startups.
Startups argued that determining the fair market value of a startup is impractical and that tax authorities often used methods that favored them over startups. Many startups received tax notices on angel investments raised years prior, with total amounts owed exceeding the original funding amount.
The removal of Angel Tax in Budget 2024 is a significant win for the startup ecosystem. It is expected to attract more investors, promote entrepreneurship, and boost economic growth. The move is also seen as a step towards creating a more favorable business environment in India.
With the abolition of Angel Tax, startups can now focus on growth and innovation without worrying about unfair taxation. The move is a testament to the government’s commitment to supporting entrepreneurship and promoting economic growth.
