What is angel tax

Angel Tax: The Tax That Just Lost Its Wings!

The government unwraps a gift for startups as Angel Tax is finally abolished! Here's everything you need to know about it!

The Union Budget 2024 has made headlines by abolishing the infamous angel tax, a move that many believe will revitalize India's startup ecosystem. Announced by Union Finance Minister Nirmala Sitharaman during her seventh budget presentation, the decision aims to encourage entrepreneurship and innovation in a sector that has recently struggled under the weight of this contentious tax. Angel tax was originally introduced as part of Section 56(2)(viib) of the Income Tax Act and was imposed on investments that exceeded the fair market value of shares sold by startups. Investors were left confused and startups were haunted by constant scrutiny, leading to a precarious atmosphere for budding businesses.

With the hostile effects of angel tax being lifted, a wave of optimism has washed over the startup community. Entrepreneurs can now focus on scaling their businesses rather than worrying about regulatory hurdles that seemed designed to stifle creativity. This move not only presents an opportunity for new businesses to flourish but also signals a shift in the government's attitude toward fostering innovation and supporting the startup economy. Moreover, with the potential reduction of TDS for e-commerce operators and plans for enhanced export initiatives, the budget looks to create an atmosphere that encourages growth across various sectors.

But how did this tax become such a thorn in everyone's side? Introduced in 2012, angel tax was initially intended to curb money laundering and undisclosed income, but over time, it became an albatross around the necks of startups. Entrepreneurs often found themselves tangled in a web of financial red tape, making it more challenging to attract investment. With the scrapping of this tax, the government seems to acknowledge the need for a clear path for investment and support rather than hurdles.

While the abolishment of angel tax brings cheers from the startup community, the government is also pursuing other financial reforms aimed at assisting various investor classes. With capital gains parity for Venture Capitalists (VCs) and plans to enhance ease of doing business, it looks like we may be approaching a golden era for entrepreneurship in India.

As a little fun fact, did you know that the term 'angel investor' originates from the theatre industry? Back in the early 1900s, wealthy individuals would fund Broadway productions, thus earning the title. Speaking of startups, India ranks third globally in the number of unicorns, totaling over 80 as per recent statistics. Let's hope the abolition of angel tax leads to even more unicorn births in the country!