It has been suggested by the Department for Promotion of Industry and Internal Trade (DPIIT) that the starting “angel tax” should be taken away. This might be talked about in the Union Budget. The head of DPIIT said that a plan has been made to get rid of the tax. The goal is to help new businesses get funds and make investors want to invest money.

Angel Tax

Companies that raise more than their fair market value have to pay an angel tax. Angel investors mostly get paid less, which is how the name came about. Part 56(2) VII B of the Income Tax Act set up this tax. It says that any extra money made from selling shares to people in other countries is “income from other sources,” which means it needs to be taxed.

Origins of Angel Tax

The 2012 Union Budget had the angel tax in it. At the time, Pranab Mukherjee was the Finance Minister. Its goal was to keep money from moving. From April 2018, something big changed: startups didn’t have to pay this tax if the total amount of money they raised, including angel investors’ money, didn’t go over 10 crore. They still needed to get more licenses and value certificates, though.

Justification for DPIIT’s Call for Repeal

People who work with startups and industry groups were always afraid about how the angel tax would affect funding and growth for startups, which is where this idea came from. That’s what the DPIIT told the finance ministry. They said getting rid of it would help capital formation in the country a lot.

How it affects startups

India has more than 141,000 DPIIT-registered startups that could benefit a lot from getting rid of the investor tax. It would also make angel purchases more appealing and smarter from a money point of view. Possible investors don’t like the angel tax right now because it cuts down on the money that can be used to grow and spend on startups. A lot of business groups, including the Confederation of Indian Industry (CII), have called for this tax to be lowered to make it easier for new businesses to start up.

Trends and problems in investing right now

It was a little less common for startups to try to raise money in the first half of 2024. This shows that times are tough for new tech startups. Big drops in the values of well-known startups also show a bigger drop in funding. This is made worse by investors being cautious about the world’s markets. Some of these problems might be solved by getting rid of the angel tax, which encourages stronger business activities.