The Narendra Modi government has scrapped the decade-old angel tax in the Union Budget 2024 to remove obstacles faced by startups, Union Finance Minister Nirmala Sitharaman revealed in an interview with The Economic Times on Thursday.
“Two years ago, we tried removing hurdles for startups. One year ago, we said startups will not be included at all. Since 2016, when startups have been given such impetus by this government, we’ve tried removing many hindrances that startups were facing, and this was one of them,” Sitharaman explained.
The removal of the angel tax brings significant relief to venture investors, eliminating a major hurdle that has long been a point of contention among startup leaders. The tax, introduced in the Union Budget of 2012 by former Finance Minister Pranab Mukherjee under the UPA 2.0 regime, was intended to crack down on money laundering. However, industry experts argued that it placed an undue financial and compliance burden on young ventures, hindering the growth of genuine risk capital in the fast-growing industry.
Elaborating on the rationale behind the decision, Sitharaman emphasized that it is part of the government’s ongoing efforts to support Indian startups. “This move is one of the many steps the Centre has taken to help Indian startups thrive,” she said.
However, this change leaves those with pending angel tax dues in a difficult position. The Finance Minister acknowledged this and assured that the government is working on a solution. “The Revenue Secretary said Wednesday we will try to sort it out. My approach would be to see how best we can sort this out. Because it can’t be that we’ve removed a tax but those litigations are going to hang fire. That cannot be a fair treatment. We will have to work out something,” she added.
Sitharaman also noted that the existing measures under the Prevention of Money Laundering Act (PMLA) and the Black Money Act are sufficient to tackle money laundering. “We were confident that the PMLA and the Black Money Act are adequate to sort this out, so we’ve just removed it,” she said.
The Manmohan Singh government initially argued that the angel tax would help distinguish between legitimate startups and those using the channel to funnel money. Under the current administration, the strategy to combat such money laundering has shifted. “What has changed is our attempt to remove those elements which were the pain points. We tried doing it. But now there is no other way in which you can make that law, that particular section, doubt-free,” Sitharaman explained.
“The provisions of PMLA and Black Money Act if invoked rightly are more than sufficient and you don’t need this section in the IT Act,” she concluded.
This move reflects the Modi government’s commitment to fostering a more favorable environment for startups, aiming to remove regulatory hurdles and promote growth and innovation in the sector.
