The government on February 19, 2019 exempted startups from ‘angel tax’ on funds they have raised from investors in the last seven years.
The Commerce and Industry Ministry issued a notification to simplify the process for startups to receive tax exemptions under an anti-evasion provision of the Act.
The decision is expected to stop companies considering migration to other destinations, and boost investments into startups.
Investments into eligible startups by non-residents and venture capital companies or funds will also be exempted beyond the Rs 25 crore limit under this section of the Act.
Angel tax is applicable to unlisted companies that have raised capital through sale of shares at a value above their fair market value. This excess capital is treated as income and taxed accordingly. This tax predominantly affects start-ups and the angel investments they attract.
