Centre abolishes Angel tax, cuts TDS on ecommerce cos

Boosts Startup Ecosystem:

• Controversial Angel tax will be abolished as per budget proposals
• Union Budget proposes to reduce TDS rate on ecommerce operators
• Govt to set up a Rs 1,000 crore VC fund for supporting space innovation
• Internship stipend to provide skilled workforce for startups

Bengaluru: Startup ecosystem in India got a huge relief on Tuesday as the Union Budget proposed to abolish the controversial Angel tax for all classes of investors. Also, deduction of TDS (tax deducted at source) on ecommerce operators, setting up of VC fund in space sector and internship stipend for newcomers are seen as positives for the startup ecosystem.

"To bolster the Indian startup ecosystem, boost the entrepreneurial spirit, and support innovation, I propose to abolish the so-called angel tax for all classes of investors," Finance Minister Nirmala Sitharaman said in her Union Budget 2024 speech.

Angel tax is a tax which is imposed on the capital raised by unlisted companies through issuance of shares to an Indian investor. It is levied when the share price of issued shares is considered in excess of the fair market value of the company. This excess realization is considered as income and is taxed accordingly.

This has been a bone of contention for many years as the approach to determine the valuation of a company, hence its individual shares, is seen subjective. Therefore, discretion of tax authorities has led to many unusual tax demands getting imposed on several startups in recent years.

Introduced in 2012, Angel tax had been introduced to curb money laundering and prevent the inflow of unaccounted money. However, startup ecosystem has been demanding the abolition of this tax for years as they see it as an impediment in promoting risk taking and innovation. Investors betting on startups through capital infusion have also considered this tax as a discouraging move.

The Union Budget also proposed several other steps to promote startup ecosystem.