Source- This post on the Angel Tax has been created based on the article “ANGEL TAX’ ABOLISHED FOR ALL CLASSES OF INVESTORS” published in “PIB” on 25 July 2024.
Why in the news?
Recently, the Union Minister for Finance proposed to abolish the ‘angel tax’ for all classes of investors while presenting the Union Budget 2024-25 in Parliament.
About Angel Tax
1. Angel tax was levied on the capital raised via the issue of shares by unlisted companies from an Indian investor if the share price of issued shares exceeded the fair market value of the company.
2. The excess funds raised at prices above fair value were treated as income, on which tax was levied.
3. The tax derives its genesis from section 56(2) (viib) of the Income Tax Act, 1961. It was first introduced in 2012 to prevent black money laundering through share sales.
4. It was levied at a rate of 30.9% on net investments in excess of the fair market value.
5. Exemptions for Startups (Announced in 2019)
i) Eligible Startups: Startups should be recognized by the Department for Promotion of Industry and Internal Trade (DPIIT) as eligible startups.
ii) Capital Limit: The aggregate amount of paid-up share capital and share premium of the startup cannot be more than ₹25 crores. This amount does not include money raised from Non-Resident Indians (NRIs), Venture Capital Firms, and specified companies.
6. Angel Investors: For angel investors, the amount of investment that exceeds the fair market value could be claimed for a 100% tax exemption. The investor must have a net worth of ₹2 crores or an income of more than ₹25 lakh in the past 3 fiscal years.
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