Angel Tax Abolished in Budget 2024: What You Need to Know

- The angel tax, introduced in 2012 to curb money laundering through startup investments, has been scrapped as announced by Finance Minister Nirmala Sitharaman on July 23, 2024. - Angel Tax, under Section 56 (2) (vii b) of the Income Tax Act, taxed funds raised by startups from angel investors exceeding the fair market value of the company, often at around 31 percent. - Startups have long criticized the tax as impractical and excessively harsh, with many receiving tax notices years after raising funds, sometimes owing more in taxes and fees than the original investment. - Initially, the tax applied only to domestic investors but was later extended to foreign investors as well. Exemptions existed for DPIIT-registered startups, but only if certified by the Inter-Ministerial Board, a status achieved by less than 1 percent of registered startups. - The removal of the angel tax is expected to bring significant relief to startups and their investors, fostering a more favorable environment for innovation and growth in the startup ecosystem. Source: Moneycontrol