Union Finance Minister Nirmala Sitharaman announced the abolishment of the Angel Tax while presenting the Union Budget 2024-25.
“First of all, to bolster the Indian startup ecosystem, boost the entrepreneurial spirit, and support innovation, I propose to abolish the so-called angel tax for all classes of investors,” she added. Department for Promotion of Industry and Internal Trade (DPIIT) secretary Rajesh Kumar Singh had already confirmed that the department plans to remove the tax.
A proposal for reassessment to reduce uncertainty and disputes by simplification of the I-T provisions was also made by the Finance Minister. The reassessment can facilitate beyond three years from the end of the assessment year only if the escaped income is Rs 50 lakh or more. This is to be valid up to five years from the end of the assessment year.
The Finance Minister further stated, “Even in search cases, a time limit of six years before the year of search, as against the existing time limit of ten years, is proposed. This will reduce tax uncertainty and disputes.”
Angel Tax is a provision under Section 56(2)(vii b) of the Income Tax Act, 1961 which labels the external investments received by startups as “income from other sources” and taxes them at a rate of 30%.
The current rules allow the venture to apply for tax exemption under Section 80-IAC of the Income Tax Act once they get registered with DPIIT as a startup. The startup can then get exemption from tax for three consecutive financial years within the first ten years of incorporation.
To be eligible for the scheme, a startup’s turnover should be less than Rs 100 crore for any of its previous financial years. At present, DPIIT recognises 1,17,000 registered startups under the Startup India scheme.
In the interim budget presented in February 2024, these eligibility standards were proposed to be amended for the startups incorporated between April 1, 2016 and March 31, 2025, with an extension of a year from March 31, 2024.
