Govt abolishes angel taxon startup funding

Capital gains tax rates between listed, unlisted equity aligned

- ARYAMAN GUPTA

Tax benefits have been announced for startups and their investors, such as scrapping the contentious angel tax for all classes of investors and aligning capital gains tax rates for listed equity with those for unlisted equity.

Angel tax, officially Section 56(2) (viib) in the Income Tax Act, applies to unlisted companies when they raise capital by issuing shares to investors at a price exceeding its fair market value. The excess amount is treated as income and taxed at 30.9 per cent.

"To bolster the Indian startup ecosystem, boost the entrepreneurial spirit, and support innovation, I propose to abolish the so-called angel tax for all classes of investors," said Union Finance Minister Nirmala Sitharaman in her Budget speech on Tuesday.

Angel tax aside, the Budget has cut the long-term capital gains tax rate for unlisted financial assets to 12.50 per cent from 20 per cent.

The angel-tax move has been hailed by startups and investors.