In a significant development, the Department for Promotion of Industry and Internal Trade (DPIIT) has recommended the removal of the contentious “angel tax” on startup investments, leaving the final decision to the Finance Ministry.
The proposed relaxation of the tax regime on angel investments aims to address concerns from the startup ecosystem, which has long criticized the 30% tax on investments made by external investors. Rajesh Kumar Singh, Secretary of DPIIT, confirmed the ministry’s recommendation and highlighted the ultimate authority of the Finance Ministry to make the final call.
The angel tax, introduced in 2012 to curb money laundering through unaccounted money raised by startups, has been viewed by many in the entrepreneurial community as a hindrance to growth and innovation. Despite the government’s stance on the necessity of the tax, numerous angel investors, venture capitalists, and activists have advocated for its removal over the past decade.
“The recommendation regarding the removal of the angel tax is a welcome move, and we (the angel investor community) are expecting complete relief from it. Our hopes now lie with the Finance Ministry,” said a prominent angel investor who has funded over 60 startups.
In September of the previous year, a government notification exempted DPIIT-registered startups from the 30% taxation, claiming relief for over 80,000 startups. However, despite this exemption, many DPIIT-approved startups and their investors received Income Tax notices over fair market valuation and investor worth details in the past six months.
The DPIIT’s recommendation is seen as a positive sign for the startup ecosystem. Additionally, several court and tribunal rulings in the past have deemed the angel tax unnecessary. The final decision, however, rests with the Finance Ministry, and the startup community eagerly awaits potential relief in the upcoming budget.
The Finance Ministry’s decision will be crucial in determining whether the startup and investor community will finally see the much-anticipated removal of the angel tax.
