Unleash 2030 Potential: India’s Bold Farewell to Angel Tax

The Indian government abolished the “angel tax,” introduced way back in 2012, which could be termed a big-bang move to promote entrepreneurship and innovation in Budget 2024. The tax was one of the biggest impediments to startups raising funds from angel investors. This will rejuvenate the startup ecosystem and bring more investments – domestic and foreign alike.

Understanding Angel Tax

The angel tax was a levy on funds that startups had raised from angel investors, once these funds had crossed what was deemed to be a fair market value of the company – this works out to something around 31%. Brought in initially to prevent money laundering practices, the tax had been largely criticized as being against innovation and raising funds.

It is in this backdrop that Finance Minister Nirmala Sitharaman has finally announced the abolition of the angel tax for all classes of investors with the view to giving a fillip to the Indian startup ecosystem, spurring entrepreneurial spirit, and nurturing innovation.

Positive Reactions from Industry Leaders

Padma Shri, Saurabh Srivastava, the former Chairman of NASSCOM and the co-founder of Indian Angel Network, went ahead and termed the abolition a game-changer for the landscape of startups. He hoped this initiative will foster exponential growth in the number of startups from 100,000 to a million within the next five years.

He is sure that with no financial barriers, domestic and foreign investors will come out openly to support Indian startups, leading to economic growth, massive employment, and solution to the challenges related to healthcare, agriculture, education, and the environment.

Addressing Funding Challenges

Abolition has come when funding to startups plunged to USD 11.3 billion in 2023 from USD 42 billion in FY2022, states India Accelerator. Its removal can bring new opportunities for funding and revive investor confidence, thereby pumping more money into the sector.

Brijesh Damodaran of Auxano Capital said in his message; Angel tax is the sword of Damocles that has now reached its end and added that this indeed provides certainty to promoters and investors.

Government’s Commitment to Innovation

According to the Chairman of Central Board of Direct Taxes, Ravi Agrawal, scrapping angel tax will encourage innovators and venture capitalists to invest in startups. He appealed to the startup community to kindly take a step in this new direction and invest, because the country requires your investment, initiatives, and innovations.

Aiming for Economic Growth

The country stands third in the global startup ecosystem and envisions being a $10 trillion economy by 2030. In this light, Aparna Thyadgrajan, co-founder IvyCap Ventures thinks that this step will be the turning stone in our journey. 

Experts point out that, in fact, the revenues generated from the taxation of startups are pretty negligible since the inception of this angel tax. It has also been marked that about 10 to 12 years have passed since the startup ecosystem began its journey, and by now, all negatives are far outweighed by the positives. 

Abolition of angel tax would have a ripple effect in the entire startup ecosystem. Not only will it alleviate most of the concerns of startups, but it will also allow easier adoption of regular deal terms like anti-dilution and valuation protections, and create an environment better-suited for raising funds and scaling.

Conclusion: A Game-Changer for the Sector

Abolition of angel tax is, therefore, a big encouragement to the ecosystem of startups in India. More entrepreneurship and innovation will be fostered, and more investments will come in, helping in the growth and development of the country’s economy. The startup community has largely welcomed this move with open arms, and experts hail the decision as a game-changing verdict for this sector.