angel tax: Budget 2024: Centre abolishes angel tax in a major boost for startup ecosystem

In a major boost to the startup ecosystem, the government has proposed to abolish the angel tax on all asset classes, finance minister Nirmala Sitharaman said Tuesday, while presenting the Union Budget for 2024-25.The Section 56 (II) (viib) of the Income Tax Act, known as angel tax, is applicable on any consideration of issue of shares that exceed the fair value of these shares issued by a privately-held company.

The amendments to the angel tax regime will be made effective from April 1, 2025, and will be applicable from assessment year 2025-26, as per the Budget statement.

Removal of angel tax has been a long-standing demand of the startup and venture investment ecosystem.

“The announcement of the removal of Angel Tax for all classes of investors is a huge reform. This is essential for startups to remain in India and build form here. This is a major step forward for Indian startups. It is a watershed moment in the Indian startup story,” said Siddarth Pai, founding partner at early-stage venture fund 3one4 Capital. Pai, who is also an executive council member of the Indian Venture Capital Association, said a tax on capital is antithetical to capital formation and this has long been used to harass startups and investors.

“Given the mandatory dematting of securities, Section 68, disclosure of unlisted investments in tax returns has plugged the transparency gap for which Angel Tax was created. It took 12 years, but the Startup Industry can heave a sigh of relief that the dreaded angel tax has been removed,” he added.Also read | ET Explainer: What is angel tax and why has DPIIT sought its removal?

ET had reported earlier this month that the department for promotion of industry and internal trade had also sought the removal of angel tax.

The tax was first introduced in the 2012 Union Budget by then finance minister Pranab Mukherjee under the UPA-II regime to arrest the laundering of funds.