Budget 2024: FM Sitharaman announces abolishment of angel tax for startups

In her record seventh Budget speech, Finance Minister Nirmala Sitharaman on Tuesday announced the abolishment of angel tax for startups in India. She said that this tax would be removed for all classes of investors.

Angel tax is levied on the capital raised via the issue of shares by unlisted companies from an Indian investor if the share price of issued shares is seen in excess of the fair market value of the company. The excess realisation is considered as income and therefore taxed accordingly. Currently, it is taxable at around 30 per cent.

The investors in early-stage startups are often referred to as angel investors, hence the name "angel tax". Angel tax was first introduced in the Union Budget 2012 by then finance minister Pranab Mukherjee under the UPA-II regime.

Before the Budget announcement, several startups and experts had said that there was a need to rationalise the angel tax for startups. In fact, this has been a long-standing demand of Indian startups which saw this tax as a hurdle in raising funds.

In 2019, the Centre made a concession that Department for Promotion of Industry and Internal Trade (DPIIT)-registered startups would be exempted from the provision.

Earlier this year, a senior government official said that the Commerce Ministry had made a recommendation to remove the angel tax, as had been the demand from startups. However, the final decision would rest with the Finance Ministry.

In July, DPIIT Secretary Rajesh Kumar Singh said, "The decision is to be taken by the Ministry of Finance; we have provided our inputs. It was not raised during the pre-Budget consultations."