Govt looks at resolving startups' Angel tax concerns

The government is considering resolving the concerns of startups regarding the angel tax and fair market valuation. The department for promotion of industry and internal trade (DPIIT) is working closely with the finance ministry, reported Mint.

The government in its Union Budget proposed that, foreign investors will also be subjected to Angel tax. Following this, startups expressed apprehension about securing funding.

As per Mint, the provision, scheduled to take effect on 1 April 2024, remains unchanged in the Finance Bill for the current fiscal year. Angel tax is levied on the profit raised by a company that is unlisted by selling shares to investor. The shares are sold above the fair market value.

A DPIIT official told Mint that they are trying to get the government on the conversation table and tell them that there's a discrepancy in calculating the fair market value which is taken internationally and by income tax.

As Indian start-ups are already facing a funding winter, they are concerned that this tax will deter the foreign investors from investing. Usually, foreign investors often sell shares at a high premium based on future growth prospects.

Foreign private equity and venture capital investments in Indian startups plunged to $54 billion in 2022 from $77 billion the prior year. The startup deal volume reached a nearly nine-year low in February.