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What is angel tax - 10 things to know with detail

• Angel tax is a tax imposed on investments made by angel investors in startups. It is aimed at preventing money laundering and tax evasion through the use of shell companies.
• Angel tax is levied on the excess amount that the startup receives over its fair market value. This excess amount is treated as income for the startup and taxed accordingly.
• The tax rate for angel tax is 30.9%, which includes a 30% tax rate plus a 10% surcharge and 4% health and education cess.
• Angel tax was introduced in India in 2012 to curb the practice of high net-worth individuals investing in startups at inflated valuations to convert their black money into white.
• Angel tax has been a contentious issue in the startup ecosystem, with many entrepreneurs and investors criticizing it for hindering the growth of early-stage businesses.
• In 2016, the Indian government introduced certain exemptions for startups to reduce the burden of angel tax. Startups that are recognized by the Department for Promotion of Industry and Internal Trade (DPIIT) are eligible for these exemptions.
• To qualify for the angel tax exemption, startups must have a turnover of less than Rs 25 crore and must not be investing in certain specified sectors like real estate, mining, and non-banking financial companies.
• In 2019, the Indian government further relaxed the angel tax rules by increasing the maximum exemption limit for startups from Rs 10 crore to Rs 25 crore. This move was aimed at providing relief to more startups from the burden of angel tax.
• Despite these exemptions and relaxations, many startups continue to face challenges with angel tax compliance due to the complex nature of the regulations and the subjective valuation process.
• In recent years, there have been calls for the complete abolition of angel tax to promote a more conducive environment for startup investments and entrepreneurship in India. Efforts are being made to streamline the tax regime and make it more startup-friendly.