Entrepreneurs from the country’s startup system have heaved a sigh of relief as the government proposes doing away with the Angel Tax.
New Delhi: In her budget speech as the Finance Minister of India, Nirmala Sitaraman has proposed abolishing the Angel Tax for all classes of investors in a bid to bolster the Indian startup ecosystem and the entrepreneurial spirit.
“First of all, to bolster the Indian start-up eco-system, boost the entrepreneurial spirit and support innovation, I propose to abolish the so-called angel tax for all classes of investors,” said Sitaraman in her budget speech of Modi 3.0 Government.
Angel tax refers to the income tax that the government imposes on funding raised by unlisted companies, or startups if their valuation exceeds the company’s fair market value.
Experts that IndiaRetailing spoke to have termed this step as significant. According to IndiaRetailing Insights, the retail sector all together has raised over Rs 1,800 crore in the previous two quarters showing the potential of increasing fundraising in the Indian startup ecosystem.
“Beyond the potential constraints on cash flow, the angel tax created numerous challenges during fundraising efforts, which worsened last year when even foreign investments became subject to this tax,” said Anisha Patnaik, Angel Investors, founder of LexStart Partners.
“The differing regulatory requirements, such as the RBI’s pricing guidelines mandating the per-share price to be above fair market value (FMV) and the tax authorities imposing angel tax on any discrepancy between the share price and FMV, resulted in several complications for startups,” she explained.
IndiaRetailing has also reached out to a couple of D2C players on how this will help their prospects and their responses shall be updated once received.
“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,” said Vidita Kochar, co-founder, Jewelbox.
This abolition of the angel tax would foster a robust startup ecosystem that encourages more private investment.
“I’m pleased with the 2024 budget. The removal of the Angel Tax is a huge relief and will make it easier for startups to get early-stage investments. This budget is a positive step forward, and it will significantly contribute to the overall economic growth of the country,” said Pallav Bihani, founder, Boldfit.
“The elimination of the angel tax will significantly benefit small and medium enterprises (SMEs), emerging brands, startups, and our portfolio brands,” said Bhavik Vasa, co-founder of GetVantage which provides equity-free funding to startups.
According to Vasa, this is expected to attract more investment and create a more favourable environment for innovation and growth in these sectors.
“Startups will no longer be viewed as an alternative asset class for investments but rather as a mainstream opportunity for every retail investor to participate in and gain high-yield returns by being a part of this growing sector. This change will attract all forms of capital and financing (including equity and quasi-equity) to the segment,” he added.
Abolishing the angel tax in the 2024 Indian budget is a game-changer for the D2C ecosystem, experts have added.
“This move not only removes a significant financial burden but also encourages more investment in startups, fostering innovation and growth in the direct-to-consumer market,” said Ashutosh Pandey, co-founder, Life n Colors Pvt Ltd.
“The FM proposed to abolish the so-called angel tax for all classes of investors will breathe fresh energy into the startup ecosystem. This progressive initiative by the government will help eliminate a major compliance obstacle, attracting investment, and creating an environment where startups can genuinely flourish,” said Ganesh Kamath, founder & CEO, of Earthraga.
In addition to this, Sitaraman also proposed India’s simpler tax regime for foreign shipping companies operating domestic cruises to promote cruise tourism, which is an employment-generating industry.
Additionally, India is a world leader in diamond cutting and polishing, employing a large number of skilled workers. To further promote this sector, safe harbour rates for foreign mining companies selling raw diamonds in the country will be provided. Moreover, to attract foreign capital for our development needs, the corporate tax rate on foreign companies will be reduced from 40 to 35%.
This story is still developing…
