LOOKING A GIFT HORSE IN THE MOUTH?

Will the angel tax exemption granted to foreign investors promote GIFT City or drive existing investors to foreign climes? BW Businessworld speaks to financial market experts for a holistic view of the situation

- Nitesh Kumar

THE DECISION of the Central Board of Direct Taxes (CBDT) to exempt investors from 21 nations from the "angel tax" - a levy imposed on the capital raised by a startup since 2012- seems to have evoked strong feelings among the investor community, but some of them may just be looking a GIFT (read Gujarat International Finance TecCity) horse in the mouth.

The "angel tax," was originally introduced in 2012 as an amendment to the Income Tax Act Section 56 (2) (viib) to discourage inflow of unaccounted funds into the country and prevent money laundering through the subscription of shares of a privately held company at a higher rate than the fair market value (FMV) of the firm's share. The tax was initially imposed only on domestic investors in startups, but the Union Budget for the 2023-23 fiscal now brings both foreign investors and non-resident Indian (NRI) investors within its ambit.

The 26 May Union Finance Ministry notification now says that residents of 21 nations, namely the United States, United Kingdom, Australia, Germany, Spain, Austria, Canada, the Czech Republic, Belgium, Denmark, Finland, Israel, Italy, Iceland, Japan, Korea, Russia, Norway, New Zealand, France and Sweden will be exempted from the angel tax. The notification seems to attempt to attract more foreign direct investments (FDI) into India from countries that have a strong, well-regulated framework. Financial sector experts point out that the notification aligns with the government's primary goal of restricting the flow of unreported funds or "black money" by bringing FDI within the purview of the angel tax.