NEW DELHI: The abolition of Angel tax for all classes of investors will act to “prompt” innovators and venture capitalists to better invest in startups and any instances of money laundering here will be taken care of by the existing legal mechanism, CBDT Chairman Ravi Agrawal said on Wednesday.
He said the removal of this tax will act to boost the startup ecosystem in India. He would urge the community to “please come forward, please invest as the country is waiting for your investment, initiatives and innovations”, Agrawal told PTI in a post-Budget interview.
Asked how would a possible case of money laundering through investor funds be tackled after the removal of the Angel tax, he said if such a violation is found or it is detected that the fund has come through “undisclosed” sources, there are provisions in the respective statute and that will be taken care of.
The head of the direct taxes administration of the country responded in the affirmative when asked if the taxman would make a reference to its sister agencies like the Enforcement Directorate (ED) if a violation of the anti-money laundering law is noticed.
“This (money laundering) issue is one. The intention, always, was never to dissuade the startups. It was never to put any stop on the investments… we in coordination with the DPIIT (Department for Promotion of Industry and Internal Trade) had actually provided relaxations insofar as the investments are concerned…,” Agrawal said.
This (removal of Angel tax) step of the government would actually prompt the startups and also the angel investors to invest in these initiatives and that will help the country, he said.
The removal of the Angel tax in the Budget 2024-25 presented by Union Finance Minister Nirmala Sitharaman on Tuesday has been seen as a big relief to startups by the experts of this domain.
Angel tax (income tax at the rate of over 30 per cent) refers to the tax that the government imposes on funding raised by unlisted companies, or startups, if their valuation exceeds the company’s fair market value.
The Budget proposal is also aimed to reduce disputes and litigation, thereby providing tax certainty and policy stability.
Section 56(2)(viib) of the Income Tax Act provides that the amount raised by a startup in excess of its fair market value would be deemed as income from other sources and would be taxed at 30 per cent.
Touted as an anti-abuse measure, this section was introduced in 2012. It is dubbed as ‘angel tax’ due to its impact on investments made by angel investors in startup ventures.
The DPIIT under the Commerce and Industry Ministry has been entrusted to recognise the startups whose figures stand at about 1.44 lakh at present. (PTI)
