After Startup India, the Indian government has made the journey easier for startups by scraping off the “Angel Tax” for investors providing funds to startups.
Under existing rules, funds raised by unlisted company through equity are covered under this tax to the extent amount raised is in excess of fair market value. Such extra inflow was referred as Income from other sources and was subject to 30% tax.
The Central Board of Direct Taxes issued a notification to this effect, exempting startups raising funds under Section 56(2)(vii) of Income Tax Act.
However, as per the notification, only startups passing the eligibility criteria as defined by Department of Industrial Policy and Promotion (DIPP) are eligible for the exemption from angel tax.
Now with the long wait finally coming to an end, angels and startups can breathe a bit easier as far as the tax regulation is concerned.