What is Angel Tax:  Explained

Orange Lightning

Angel Tax is an income tax on capital raised by unlisted companies through shares issued to angel investors when the share price exceeds fair market value. Introduced to curb money laundering, it impacts startups and investors.

Orange Lightning

1

Definition of Angel Tax

Angel Tax refers to the income tax levied on funding received by startups from an external investor, exceeding the fair market value of the shares issued.

2

Origin of Angel Tax

Introduced in the Finance Act of 2012 by the Indian government to curb money laundering practices where unaccounted money was shown as angel investment.

3

Calculation of Angel Tax

Calculated as the difference between the price at which the shares were issued and the fair market value of those shares, taxed under the head "Income from Other Sources."

4

Impact on Startups

Challenges for startups include difficulties in securing funding, increased scrutiny from tax authorities, and potential cash flow issues due to the tax liability.

5

Exemptions and Reliefs

Exemptions for startups recognized by the Department for Promotion of Industry and Internal Trade (DPIIT) and compliance requirements to avail these exemptions.

6

Recent Changes and Developments

Updates on recent regulatory changes aimed at easing the burden of Angel Tax on startups, including policy amendments and government initiatives.

7

Investor Perspective

Concerns for angel investors, such as reduced attractiveness of investing in startups due to potential tax liabilities and the impact on the overall investment ecosystem.