Budget 2024: Relief For Startups As Angel Tax For Investors To Be Abolished

The government will abolish the so-called angel tax for all classes of investors to ease investment avenues for startups, Finance Minister Nirmala Sitharaman said, while presenting the Union Budget 2024.

The angel tax currently stands at about 30% for investors looking to put in money in these high-growth companies. The name comes from the term angel investors, which refers to early-stage investors in startups.

Under the UPA-II regime, then Finance Minister Pranab Mukherjee first introduced the angel tax in the Union budget 2012.

"The abolition of angel tax, withdrawal of equalisation levy and rationalisation of dispute resolution-related provisions in the Indian budget 2024 have been welcomed as bold steps towards fostering a more investor-friendly environment. These reforms are expected to encourage startup growth and attract more venture capital, potentially boosting innovation and economic dynamism," according to Anshul Khemuka, partner, Khaitan & Co.

"This is truly awesome... Thank you Finance Minister for listening to startups and investors. Funding sources will open up wider and startups will be able to use 100% of their cash flows to build their businesses. This will bring a huge impetus to the growth of our startups," Padmaja Ruparel, co-founder, Indian Angel Network said.

The removal of angel tax has been a longstanding demand in the startup sector, with companies from all sectors rooting for it. In addition, the sector had demanded the government address dual taxation on ESOPs.

Startups have largely relied on venture capital from abroad for funding, but other avenues are opening up locally as well. The government has also established the GIFT City, which provides an offshore, alternate financing framework.