India’s federal government has axed the contentious “angel tax” for all classes of investors, delivering a major victory to the country’s booming startup ecosystem after years of intense lobbying against the measure.
“To bolster the India startup ecosystem, to boost entrepreneurial spirit and support innovation I propose abolishing angel tax for all classes of investors,” Finance Minister Nirmala Sitharaman said in her budget speech, the first under a new coalition government led by Prime Minister Narendra Modi.
The tax, introduced in 2012, had long been a thorn in the side of early-stage companies and their backers. It taxed investments in startups when valuations exceeded what tax officials deemed fair market value – a calculation that often clashed with investors’ more optimistic projections. The Indian government attempted to simplify the tax in 2019, but it had limited benefits to the ecosystem.
The problem stemmed from how different parties valued young companies. Investors typically use discounted cash flow methods, betting on future potential. Tax authorities, on the other hand, looked at current worth – usually much lower for fledgling startups. This mismatch led to headaches for founders trying to raise capital.
For years, prominent voices in India’s startup world railed against the angel tax. They argued it was choking off vital funding for innovation.
This is a developing story. More to follow.
