Angel tax was earlier merely a tax imposed on investments made by a resident investor. A new proposal made by the Indian government in the 2023-2024 budget has broadened the horizon for an angel investor. This new approach is more focused on the premium. When a foreign investor purchases a share from an unlisted Indian company at a premium price that exceeds the fair market value, the additional amount of the premium will be classified as “income from other sources” and will be liable to taxation.
Angel investments are typically made by high-net-worth individuals, often referred to as angel investors, who provide early-stage funding to startup companies in exchange for equity. These investments can be crucial for young companies looking to grow and expand, as they often provide the initial capital needed to get off the ground.
However, concerns have been raised about the lack of transparency in the angel investment process, with many investors using loopholes to avoid paying taxes on their investments. In response, the Indian government has proposed the introduction of the Angel Tax, which will require investors to provide more detailed information about their investments and pay a tax on the gains they make.
The specifics of the Angel Tax are yet to be announced, but it is expected to be similar to capital gains tax, which is currently levied on the sale of assets such as stocks and property. This means that investors will be required to pay tax on the profits they make from their investments, with the amount of tax varying depending on the size and duration of the investment.
While the introduction of the Angel Tax has been welcomed by some, others have expressed concern that it will deter investors from putting their money into startup companies. This could have a significant impact on the Indian economy, as startups have played a key role in driving growth and innovation in recent years.
However, properties of this tax argue that it will help to promote transparency and accountability in the angel investment process, which will in turn benefit both investors and startups. By requiring investors to provide more detailed information about their investments and pay a fair share of taxes, the government hopes to create a more level playing field for startups and prevent large investors from dominating the market.
The government has also announced that it will be introducing several measures to support startups and encourage investment, including the creation of a dedicated fund for early-stage startups and the provision of tax incentives for investors who put their money into these companies.
Overall, the introduction of the Angel Tax is likely to have a significant impact on the Indian startup ecosystem. While there are concerns that it could deter investment and stifle innovation, the government’s commitment to supporting startups and promoting transparency in the investment process suggests that it could also have a positive impact in the long run. As details of the Angel Tax are expected to be announced in the coming weeks, all eyes will be on the Indian government to see how it plans to balance the needs of investors and startups in this rapidly evolving landscape.
