In Budget 2024-25, government has announced to abolish the angel tax for all classes of investors’ to boost the entrepreneurial spirit and support innovation.
What is Angel Tax?
- Definition: Refers to the income tax that the government imposes on funding raised by unlisted companies, or startups, if their valuation exceeds the company’s fair market value.
- For instance, if the fair market value of a start-up share is Rs 10 a piece, and in a subsequent funding round they offer it to an investor for Rs 20, then the difference of Rs 10 would be taxed as income.
- Objective: It was introduced in 2012 to curb money laundering and tax evasion.
- Legal Provision: It was levied under Section 56 (II) (viib) of the Income Tax Act, 1961.
- Coverage: Earlier it applied only to local investors but the Budget 2023-24 widened its ambit to include foreign investments (with some exceptions).
Fair Market Value (FMV):
Unicorn:
Reverse Flipping:
|
Status of Start-ups in India:
- India has the 3rd largest startup ecosystem in the world.
- There are over 1 lakh (100,000+) recognized startups in India.
- More than 100 startups have achieved “unicorn” status, meaning they have reached a valuation of $1 billion or more.
