The Indian startup scene applauded the Union Budget 2024 on Tuesday for doing away with the angel tax, which was levied on money raised by companies from angel investors, for all categories of financiers.
The change, according to Union Finance Minister Nirmala Sitharaman, was made to support innovation, encourage entrepreneurship, and strengthen the Indian startup ecosystem during her budget speech.
The government’s support for startup investment is demonstrated by the abolition of the angel tax, which is excellent news for early-stage companies. A better India is being positioned by the emphasis on increasing manufacturing, fostering skill development, assisting MSMEs, and generating jobs, said Varun Gupta, Co-Founder, BOULT.
Neha Singh, co-founder of Tracxn, continued, “The removal of angel tax will boost confidence among investors in India, particularly at a time when startup funding is declining.”
Leading market intelligence platform Tracxn has released a research stating that investment for the Indian startup ecosystem fell by 13% in H1 2024 as opposed to H1 2023.
“Removing the angel tax is a calculated move that will help India become known as a global innovation hub, boost domestic capital formation, and make doing business easier. This program demonstrates the government’s dedication to supporting a thriving startup ecosystem while also stimulating innovation and entrepreneurship,” Singh stated.
According to the Fintech Association for Consumer Empowerment (FACE), the action will “encourage innovation and benefit the startup ecosystem.”
“The manufacturing and services sectors will be stimulated, driving growth and global competitiveness, by the enhanced support for MSMEs, which includes the introduction of the credit guarantee scheme and increased Mudra loan limits,” the statement continued.
The main goal of angel tax, which was first proposed in the Union Budget of 2012 by then-finance minister Pranab Mukherjee, was to prevent money laundering by encouraging investments in start-ups.
It also tried to apprehend phoney companies. Nonetheless, tax officials regarded the premium that investors paid as income, subject to a 31 percent tax.
This resulted in numerous issues including heartburn. The final repeal of the angel tax is such a relief. This has been highly desired by investors and founders in the startup ecosystem, according to M Ramakrishnan, Managing Director at Primus Partners.
The global investor community generally welcomes regulatory clarity, which is something that this effort to eliminate the angel tax has the potential to deliver. This could be beneficial for entrepreneurs trying to raise money in both domestic and foreign markets, said Inflection Point Ventures, Co-founder, Ankur Mittal.
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