Centre scraps angel tax | Reactions from the startup founders and industry experts

In her Budget speech today, Finance Minister Nirmala Sitharaman proposed to abolish angel tax for all classes of investors in startups. The angel tax was introduced in 2012.

Angel tax is paid on money obtained by unlisted firms by the issuance of shares from an Indian investor if the share price of the issued shares exceeds the company's fair market value. The extra realisation is treated as income and hence taxed accordingly.

Angel tax sought to reduce the use of undeclared money through inflated share prices in closely held enterprises. However, venture capitalists and industry experts have long advocated for its elimination to create a more favourable atmosphere for Indian entrepreneurs.

Section 56(2)(viib) of the Income Tax Act of 1961 serves as the foundation for the angel tax. The Finance Act of 2012 added Section 56(2)(viib) to the IT Act, which taxes any investment received by an unlisted Indian firm valued beyond its fair market value as income. The investment in excess of fair value is classified as 'Income from other sources', and the tax levied on it is known as Angel Tax since it mostly affects angel investors who invest in businesses.

A look at the reactions from startup founders and industry experts on the removal of angel tax.

Saurav Kasera, co-Founder and CEO, Clirnet and DocTube, says:
The Union Budget 2024-25 presents several promising initiatives for the digital sector. The abolition of the angel tax is a significant step that will foster innovation and support start-ups. The emphasis on research and development, particularly through the Anusandhan National Research Fund, will drive technological advancements. The government's commitment to developing Digital Public Infrastructure (DPI) will enhance service delivery and support the integration of healthcare. Additionally, policy support for MSMEs and focus on skilling will benefit by providing access to credit and preparing the workforce for future demands.

Apoorva Ranjan Sharma, co-founder and MD, Venture Catalysts, says: 
"Today's budget announcement by the Finance Minister is a game-changer for India's space economy and startup ecosystem. Finally after 13 years the draconian angel tax has been abolished providing a major relief for Investors, startups, encouraging more early stage investments and reducing financial burdens. This move fosters a more conducive environment for innovation and entrepreneurship, demonstrating the government's commitment to nurturing a vibrant startup ecosystem. However, we need to wait for the final print to understand the impact. 

At Venture Catalysts, we are thrilled by the government's ambitious plan to expand the space sector fivefold over the next decade. The establishment of a Rs 1,000 crore venture capital fund is a bold step that will provide the necessary capital to fuel innovation and growth in this critical industry. This fund will enable startups to scale operations, invest in cutting-edge research, and bring groundbreaking technologies to market.

Zaiba Sarang, co-founder of iThink Logistics commented:
"The 2024 budget announcements are a significant boost for the logistics and e-commerce industries. The increased focus on infrastructure development, digital transformation, and sustainability initiatives is highly encouraging. At iThink Logistics, we are particularly excited about the emphasis on technology adoption and the support for MSMEs, which are crucial for driving growth and innovation. The establishment of E-Commerce Export Hubs in PPP mode will enable MSMEs and traditional artisans to sell their products in international markets, expanding their reach and potential. Additionally, the reduction of the TDS rate on e-commerce operators from 1% to 0.1% will ease financial burdens and promote business growth. These measures align perfectly with our mission to deliver superior service and drive positive change in the industry. We look forward to leveraging these advancements to continue setting new standards in logistics and e-commerce."

According to Suchita Vishnoi, co-founder & CMO, GatewAI:
The recent budget announcement marks a transformative step towards empowering women and enhancing their role in India's economic landscape. GatewAI commends the government's commitment to advancing women through substantial initiatives such as the provision of ₹30 crore in Mudra Yojana loans, aimed at fostering entrepreneurship and providing financial support to women entrepreneurs. This move will significantly ease the path for women to start and scale their own businesses. Moreover, the focus on STEM education, with girls and women constituting 43% of enrolments, reflects a progressive approach to bridging the gender gap in technology and innovation sectors. This investment in education not only prepares women for the future but also drives their increased participation in the workforce. Additionally, the Lakhpati Didi schemes exemplify the government's dedication to transforming women’s economic status and promoting financial independence. These measures collectively highlight a robust strategy for empowering women, fostering entrepreneurship, and creating a more inclusive economic environment.

Ankur Goel, CEO & Founder of Skillible: 
The recent budget announcement by Finance Minister Nirmala Sitharaman has set a strong precedent for the future of education and skill development in India. Skillible commends the introduction of E-vouchers for 1 lakh students, facilitating a 3% interest subvention on loans, and the ambitious plan to upgrade 1,000 industrial training institutes. The revised Model Skilling Loan Scheme, projected to benefit 25,000 students annually, and the new centrally sponsored scheme under the PM package for skilling, aiming to skill 20 lakh youth over five years, are transformative steps.

Milan Sharma, founder and MD, 35North Ventures, says:
Angle Tax has faced many backlashes since its inception. Due to consideration of the fact that many startups in their early stages rely heavily on funding, which intern isn't easy to get. Angle taxes were a barrier that hindered companies' growth by interfering with their early financial plans.

The abolishment of the angle tax in the 2024 budget will foster a more conducive environment by giving startups the financial liberty they require for growth. Additionally, this encourages angel investors to make more investments.  

While VCs also give credit to businesses with a decent funding track record. This improves the chances of growth for firms seeking to raise money in later rounds.

Somdutta Singh, founder and CEO Assiduus, says:
Angel Tax's abolition is a definite game-changer for our entrepreneurial ecosystem. I have said this earlier as well. This will significantly reduce the financial and regulatory burden on startups, encouraging more angel investors to fund innovative ventures. Let's see this pragamatically. This move will not only boost the flow of capital into early-stage startups but also foster a more supportive environment for entrepreneurs to thrive. By eliminating this hurdle, I believe this is a decisive step towards nurturing India's startup culture that will drive economic growth through innovation.

Prateek Jain, associate director-Startup and Alliances, Alliance of Digital India Foundation, commented:
The abolition of the 'angel tax' is a game-changer, removing a significant barrier that has long hindered the growth of startups and discouraged investment. This progressive step will undoubtedly foster a more vibrant and dynamic startup ecosystem, encouraging innovation and entrepreneurship across the country.

Moreover, the government's substantial allocation towards skilling programs and job creation is a commendable move. By investing in the youth and enhancing their employability, we are laying the foundation for a robust digital workforce that will drive India's future growth. The emphasis on natural farming and urban development also reflects a holistic approach to sustainable development, which is crucial for long-term economic stability.

Sharing response by Kush Gupta, Director at SKG Investment & Advisory
This will provide a big boost to the startup industry and attract investments. While these are forward looking initiative, there have been some disappointments as well on the capital gain front. 
•LTCG has been increased to 12.5 per cent from 10 per cent providing no relief to the long-term investor. 
•STT on Futures & Options has been doubled, this could be seen as a move to curb speculation but it’s not received well by arbitrages and stock brokers. 
•No relief for Debt Mutual Funds, long term capital gain benefit was removed in debt mutual fund. This is to remain as it is, it will not promote investments in this sector.

Akshay Chaturvedi, founder & CEO, Leverage.biz:
“The announcements made in the Union Budget by our honorable Finance Minister, Nirmala Sitharaman, are commendable and timely. The financial support for loans up to Rs 10 lakh for higher education and skilling loans up to ₹7.5 lakh will significantly enhance access to education and skill development for students across the country. The Prime Minister’s Package for employment and skilling, along with the three schemes announced for 'Employment Linked Incentive,' demonstrates a strong commitment to empowering youth and addressing the employment challenge. Additionally, the centrally sponsored skilling programme aiming to skill 20 lakh youth over five years is a visionary step forward. The budgetary allocation of ₹1.48 lakh crore for education, employment, and skilling reflects the government's dedication to fostering a well-rounded and skilled workforce."

Ankur Mittal, Cofounder, Inflection Point Ventures:
While we have to still read the complete change on the abolishment of angel tax but on the face of it, this action has the ability to bring lot of regulatory clarity which generally is appreciated by the investor communities across the world. This should help founders looking to raise capital both in domestic and international markets.

Rahul Agarwal, founder and CEO of Ideal Insurance:
We wholeheartedly welcome the government's decision to abolish the angel tax. This progressive move by Union Minister Nirmala Sitharaman marks a significant step towards fostering a more vibrant and supportive ecosystem for startups in India. By removing this financial burden, the government is empowering innovation and ensuring that startups can attract the investment needed to thrive and drive economic growth. This decision not only boosts investor confidence but also reaffirms India's commitment to becoming a global hub for entrepreneurial excellence.

Anirudh A Damani, managing partner, Artha Venture Fund:
The removal of the angel tax will make it significantly easier for us to complete transactions faster and streamline the investment process. Previously, the requirement for income tax officers to understand and assess valuations led to unnecessary conflicts and delays, involving CAs, valuers, and tax officials. Valuation assessments were never meant to fall within the purview of income tax officers, and this change eliminates those complications. This simplification allows us to focus on our primary job—investing in and supporting innovative startups—without the burden of navigating through cumbersome tax regulations.

Ratna Mehta, managing partner, Fundalogical Ventures:
Abolition of angel tax will provide a boost to the budding Indian startup ecosystem. It will  encourage the flow of capital without tax leakages, especially relevant at a time when the funding crunch is impacting startup liquidity. It is key to establish India as an innovation hub and leader v. follower for new and breakthrough ideas. Focus of the budget is on sustainable growth with employment generation, of continuity and stability. The changes on the capital gains tax structure was unexpected, especially during a time when the fiscal position of the economy seems to be in check.

Sandiip Bhammer, founder and co-managing partner, Green Frontier Capital, commented:
The Union Budget 2024 of the Indian government introduces a 1000 crore Rs VC fund aimed at fostering early-stage businesses and innovation, enhancing the entrepreneurial landscape through vital financial support for technological advancement and economic growth. This initiative underscores the government's commitment to nurturing a vibrant startup ecosystem and positioning India as a global hub for innovation. Additionally, by establishing a robust framework for green investments aligned with climate taxonomy, the budget seeks to attract more capital to eco-friendly projects, ensuring transparency and boosting investor confidence. The removal of the angel tax further bolsters these efforts, facilitating innovation, stimulating both domestic and foreign investments, and streamlining financing for startups, highlighting India's dedication to fostering business growth and creating a conducive business environment.

Raghvendra Nath, MD, Ladderup Wealth Management:
 “The budget announcement was largely as anticipated, emphasizing fiscal consolidation with a target fiscal deficit of 4.9% for FY 24-25. It introduces measures aimed at boosting youth employment and skills development and has allocated a significant Rs 1.52 lakh crore for agricultural and allied sectors. Infrastructure continues to be a focus area with 3.4% of GDP (totalling 11.11 lakh crore) earmarked for this critical sector. Additionally, new schemes and measures have been introduced to bolster manufacturing, services, and the energy sector. The budget also includes supplementary allocations to Bihar and Andhra Pradesh to boost capital investment. The middle class received marginal relief with an increased standard deduction of Rs 75,000 for salaried individuals under the new regime and a higher exemption limit on LTCG raised from Rs 1 lakh to Rs 1.25 lakh. 

Reductions in customs duties on gold and silver are anticipated to benefit domestic companies by potentially lowering the prices of these precious metals. Initial market response has been negative due to the increase in LTCG tax on listed equities to 12.5% from 10%, an increase in STCG to 20% from 15%, and higher STT rates on Futures & Options at 0.02% and 0.1%, respectively.”

Vijender Reddy Muthyala, co-founder & CEO, DrinkPrime:
The Union Budget 2024-25 promotes water sustainability and provides significant benefits for startups which was much needed. The removal of the angel tax is particularly beneficial, enabling startups to secure more funding and attract investments. The ease of FDI approval in clean technology will boost international funding and innovation. Also, the budget's efforts to improve water security through infrastructure upgrades, pipeline repairs, and enhanced wastewater treatment are appreciated. Increased support for startups and NGOs, along with public-private collaborations, is a positive step toward making clean drinking water more accessible and affordable.

Jaspreet Bindra, founder, Tech Whisperer:
The emphasis on technology and innovation in the 2024-25 Union Budget is a major boost for the AI and tech sectors and aligns India to achieve the Viksit Bharat goal of 2047. 
The removal of the Angel Tax for investors is a significant step that will strengthen the startup ecosystem, encouraging more investments and fostering innovation. This change will significantly improve startup funding sentiment while boosting the morale of deep tech and AI startups to take bigger bets. We to use the DPI model in AI to take a quantum leap in education, healthcare, and employment.