Abolishing angel tax to benefit entire Indian startup ecosystem: Experts

New Delhi, July 24: The Indian startup ecosystem players on Wednesday applauded the Budget 2024 for doing away with the angel tax, which was levied on money raised by companies from angel investors, for all categories of financiers.

Union Finance Minister Nirmala Sitharaman said the change was made to support innovation, encourage entrepreneurship, and strengthen the Indian startup ecosystem during her budget speech.

“The Finance Minister, in a bid to strengthen the startup ecosystem and foster innovation across the country, has abolished Angel tax which clearly shows the government's commitment to nurture startups and make India a hub for startups”, said Subir Sinha, Managing Director, StartupHR Consulting.

“The overall budget is positive in many aspects. The government abolished angel tax that benefits the entire startup ecosystem. Indexation is also removed from capital gain calculation which reduces complications in the taxation”, noted Ritesh Malik, founder of Innov8 and a serial investor.

The primary objective of angel tax was to check money laundering practices through investments in startups.

It also aimed to catch bogus firms. However, the premium paid by investors was considered as income, taxable at around 31 per cent, by tax authorities.

According to experts, this caused a lot of problems and heartburn for the startup ecosystem.

The action to abolish angel tax has the ability to bring a lot of regulatory clarity which generally is appreciated by investor communities across the world, they added.

Ashok Chandak, President, the India Electronics and Semiconductor Association (IESA), said the removal of angel tax and support for prototypes will bolster local R&D, product innovation and the startup ecosystem.