Finance Bill: No respite for startups as Angel Tax effective from Apr 2024

The Indian government will implement angel tax from April 1, 2024. The Centre has not taken back the proposal to implement the angel tax on startups as the Finance Bill 2023 got passed in Parliament on Friday.  

Previously, many stakeholders had suggested the exclusion of investments from foreign companies in startups from the Angel Tax regime. However, the Finance Bill 2023 states that there is no change in its intent to implement angel tax.

According to the finance ministry's background note, these changes will be for the assessment year 2024-25 and for financial year 2023-24.

"Angel tax-deferred to 1st April 2024: No, in the original proposal as well it was to come into effect from April 1, 2024, that is for the assessment year 2024-25 (FY 2023-24). There is no change in it." the note read.

The ministry also reassured stakeholders that their concerns around the implementation of this proposal will be addressed. The note further added that the draft rules related to valuation will be shared with the stakeholders for their input in April.

Exclusions, as already provided to domestic Venture Capital Funds etc, shall also be considered for similar overseas entities.

"The draft rules related to valuation shall be shared with the stakeholders for their inputs in the next month itself, viz April. Exclusions, as already provided to domestic Venture Capital Funds etc, shall also be considered for similar overseas entities." the note added.

Stakeholders including venture capitalists have been raising concerns about the negative impact of funding for startups. 

At present, the amendment to the Finance Bill, 2023, means that there is no exemption for overseas investors and they need to pay a tax on deals. So if startups raise funding from non-resident investors, it will be counted as taxable as income.