Angel Tax is a term used in India to refer to a tax that was levied on investments made by angel investors in startups. The tax was introduced in 2012 and required startups to pay tax on the capital raised from angel investors at a rate of 30%. However, the tax was considered to be a major obstacle for startups and was widely criticized for its negative impact on the startup ecosystem.
In response to the criticism, the government of India has taken steps to simplify the process of taxation for startups. The Central Board of Direct Taxes (CBDT) has announced that it is likely to issue rules next week to provide clarity on the Angel Tax.
The new rules are expected to provide relief to startups by clarifying the definition of startups, the criteria for eligibility for tax exemption, and the process for claiming the exemption. The rules are also expected to provide guidelines for the valuation of startups, which has been a major issue in the past.
Overall, the new rules are expected to provide much-needed clarity and relief to startups and angel investors in India.
Angel Tax is a term used in India to refer to a tax that was levied on investments made by angel investors in startups. The tax was introduced in 2012 as a measure to prevent money laundering, but it had an unintended negative impact on the startup ecosystem in India.
Under the previous system, if a startup raised capital from an angel investor at a valuation higher than its “fair market value”, the difference between the two valuations was considered income for the startup, and taxed at a rate of 30%. This meant that startups had to pay tax on the money they had raised, which was seen as a major obstacle to their growth. To address these concerns, the Indian government has taken several steps in recent years to simplify the taxation process for startups. In 2018, the government announced that startups with a total funding of up to INR 10 crore ($1.5 million) would be exempt from Angel Tax. This exemption was extended to startups with a total funding of up to INR 25 crore ($3.5 million) in 2019.
In addition, the government has also taken steps to clarify the definition of startups and the criteria for eligibility for tax exemption. For example, the government has stipulated that only startups that are less than ten years old and have a turnover of less than INR 100 crore ($14 million) are eligible for tax exemption. The new rules that are expected to be issued by the CBDT next week are expected to provide further clarity and relief to startups and angel investors in India. They are also expected to address some of the concerns around the valuation of startups and provide guidelines for the same.