Ahead Of Union Budget, DPIIT Favours Angel Tax Removal

The Commerce Ministry has advised the removal of the angel tax, which has been a longstanding demand from startups, according to media reports. However, the final decision will be made by the Finance Ministry, according to DPIIT Secretary Rajesh Kumar Singh.

Venture capital investors and startup founders are hopeful that the Modi Government 3.0 will repeal the angel tax. Initially introduced in 2012 to curb money laundering, this regulation taxes startup fundraising from angel investors if the valuation exceeds the fair market value of shares, subject to a tax rate of around 31 per cent.

In 2019, a LocalCircles survey found that over 73 per cent of startups raising between Rs 50 lakh and Rs 2 crore received angel tax notices from the income tax department, according to media reports.

Startups and investors have voiced concerns about harassment from tax authorities over legitimate investments. Instances have been reported where tax notices were issued for investments made 3-4 years prior, with demanded amounts often exceeding the original funding.