India’s federal government has removed the controversial “angel tax” for all classes of investors, delivering a major victory to the country’s startup ecosystem that had lobbied for years against the measure.
“To bolster the India startup ecosystem, to boost entrepreneurial spirit and support innovation, I propose abolishing angel tax for all classes of investors,” Finance Minister Nirmala Sitharaman said in her budget speech.
The tax, introduced in 2012, has long been a pain point for early-stage companies and their backers. It taxed investments in startups when valuations exceeded what tax officials deemed fair market value — a calculation that often clashed with investors’ more optimistic projections. The Indian government attempted to simplify the tax in 2019, but even the new structure had limited benefits for the ecosystem.
The problem stemmed from how different parties valued young companies. Investors typically use discounted cash flow methods, betting on future potential. Tax authorities, on the other hand, looked at current worth, which is usually low for fledgling startups. This mismatch led to headaches for founders trying to raise capital.
For years, prominent voices in India’s startup ecosystem have railed against the angel tax. They argued it was choking off vital funding for innovation.
This is a developing story. More to follow.