{"id":26341,"date":"2021-02-22T12:21:30","date_gmt":"2021-02-22T06:51:30","guid":{"rendered":"https:\/\/corpbiz.io\/learning\/?p=26341"},"modified":"2021-10-30T16:19:41","modified_gmt":"2021-10-30T10:49:41","slug":"fundamental-of-angel-tax-for-startups-and-investors-in-india","status":"publish","type":"post","link":"https:\/\/corpbiz.io\/learning\/fundamental-of-angel-tax-for-startups-and-investors-in-india\/","title":{"rendered":"Understanding the Fundamental of Angel Tax for Startups and Investors in India"},"content":{"rendered":"\n<p class=\"has-drop-cap\">BJP governance has a proven track record for promoting technology and industrial growth. In the continuation of such objectives, the Government had come up with another scheme called <a href=\"https:\/\/corpbiz.io\/startup-india-registration\"><strong>Startup India<\/strong><\/a> to create a business-friendly environment for the new companies and the investors. The scheme aims to promote new ideas and concepts coming from startups. The initiative does help many new businesses to grow in tandem with the angel investor through various benefits and supportive schemes. But angel tax still remains one of the biggest roadblocks for the growth of startups and the investors. Since the angel tax for startups has created a lot of buzz in the business fraternity in recent times, let us discuss some fundamental aspects of the same to understand it better.<\/p>\n\n\n\n<div id=\"ez-toc-container\" class=\"ez-toc-v2_0_82_2 counter-hierarchy ez-toc-counter ez-toc-grey ez-toc-container-direction\">\n<div class=\"ez-toc-title-container\">\n<p class=\"ez-toc-title ez-toc-toggle\" style=\"cursor:pointer\">Page Contents<\/p>\n<span class=\"ez-toc-title-toggle\"><a href=\"#\" class=\"ez-toc-pull-right ez-toc-btn ez-toc-btn-xs ez-toc-btn-default ez-toc-toggle\" aria-label=\"Toggle Table of Content\"><span class=\"ez-toc-js-icon-con\"><span class=\"\"><span class=\"eztoc-hide\" style=\"display:none;\">Toggle<\/span><span class=\"ez-toc-icon-toggle-span\"><svg style=\"fill: #999;color:#999\" xmlns=\"http:\/\/www.w3.org\/2000\/svg\" class=\"list-377408\" width=\"20px\" height=\"20px\" viewBox=\"0 0 24 24\" fill=\"none\"><path d=\"M6 6H4v2h2V6zm14 0H8v2h12V6zM4 11h2v2H4v-2zm16 0H8v2h12v-2zM4 16h2v2H4v-2zm16 0H8v2h12v-2z\" fill=\"currentColor\"><\/path><\/svg><svg style=\"fill: #999;color:#999\" class=\"arrow-unsorted-368013\" xmlns=\"http:\/\/www.w3.org\/2000\/svg\" width=\"10px\" height=\"10px\" viewBox=\"0 0 24 24\" version=\"1.2\" baseProfile=\"tiny\"><path d=\"M18.2 9.3l-6.2-6.3-6.2 6.3c-.2.2-.3.4-.3.7s.1.5.3.7c.2.2.4.3.7.3h11c.3 0 .5-.1.7-.3.2-.2.3-.5.3-.7s-.1-.5-.3-.7zM5.8 14.7l6.2 6.3 6.2-6.3c.2-.2.3-.5.3-.7s-.1-.5-.3-.7c-.2-.2-.4-.3-.7-.3h-11c-.3 0-.5.1-.7.3-.2.2-.3.5-.3.7s.1.5.3.7z\"\/><\/svg><\/span><\/span><\/span><\/a><\/span><\/div>\n<nav><ul class='ez-toc-list ez-toc-list-level-1 eztoc-toggle-hide-by-default' ><li class='ez-toc-page-1 ez-toc-heading-level-2'><a class=\"ez-toc-link ez-toc-heading-1\" href=\"https:\/\/corpbiz.io\/learning\/fundamental-of-angel-tax-for-startups-and-investors-in-india\/#Underlining_the_Impact_of_Angel_Tax_for_Startups_in_the_Present_Scenario\" >Underlining the Impact of Angel Tax for Startups\nin the Present Scenario<\/a><\/li><li class='ez-toc-page-1 ez-toc-heading-level-2'><a class=\"ez-toc-link ez-toc-heading-2\" href=\"https:\/\/corpbiz.io\/learning\/fundamental-of-angel-tax-for-startups-and-investors-in-india\/#What_is_an_Angel_Investment\" >What is an Angel Investment?<\/a><\/li><li class='ez-toc-page-1 ez-toc-heading-level-2'><a class=\"ez-toc-link ez-toc-heading-3\" href=\"https:\/\/corpbiz.io\/learning\/fundamental-of-angel-tax-for-startups-and-investors-in-india\/#What_is_an_Angel_Tax_for_Startups\" >What is an Angel Tax for Startups?&nbsp;<\/a><\/li><li class='ez-toc-page-1 ez-toc-heading-level-2'><a class=\"ez-toc-link ez-toc-heading-4\" href=\"https:\/\/corpbiz.io\/learning\/fundamental-of-angel-tax-for-startups-and-investors-in-india\/#What_is_the_Fundamental_Issue_with_Angel_Tax_for_Startups\" >What is the Fundamental Issue with Angel Tax for\nStartups?<\/a><\/li><li class='ez-toc-page-1 ez-toc-heading-level-2'><a class=\"ez-toc-link ez-toc-heading-5\" href=\"https:\/\/corpbiz.io\/learning\/fundamental-of-angel-tax-for-startups-and-investors-in-india\/#Why_Angel_Tax_for_Startups_is_Deterrent_to_the_Business_Fraternity_and_Investors\" >Why Angel Tax for Startups is Deterrent to the Business\nFraternity and Investors?&nbsp;<\/a><\/li><li class='ez-toc-page-1 ez-toc-heading-level-2'><a class=\"ez-toc-link ez-toc-heading-6\" href=\"https:\/\/corpbiz.io\/learning\/fundamental-of-angel-tax-for-startups-and-investors-in-india\/#What_Amendments_did_the_Indian_Government_made_to_Angel_Tax_for_Startups\" >What Amendments did the Indian Government made\nto Angel Tax for Startups?<\/a><\/li><li class='ez-toc-page-1 ez-toc-heading-level-2'><a class=\"ez-toc-link ez-toc-heading-7\" href=\"https:\/\/corpbiz.io\/learning\/fundamental-of-angel-tax-for-startups-and-investors-in-india\/#What_are_the_Conditions_to_Get_Exempt_from_Angel_Tax\" >What\nare the Conditions to Get Exempt from Angel Tax?<\/a><\/li><li class='ez-toc-page-1 ez-toc-heading-level-2'><a class=\"ez-toc-link ez-toc-heading-8\" href=\"https:\/\/corpbiz.io\/learning\/fundamental-of-angel-tax-for-startups-and-investors-in-india\/#Concluding_Words\" >Concluding Words<\/a><\/li><\/ul><\/nav><\/div>\n<h2 class=\"wp-block-heading\"><span class=\"ez-toc-section\" id=\"Underlining_the_Impact_of_Angel_Tax_for_Startups_in_the_Present_Scenario\"><\/span>Underlining the Impact of Angel Tax for Startups\nin the Present Scenario<span class=\"ez-toc-section-end\"><\/span><\/h2>\n\n\n\n<p>High net worth\nindividuals, angel investors, overseas funds, venture capitalists, almost every\nperson or firm with investment potential have played a role in investing in\nmultiple Indian startups. However, the ongoing Government under Modi&#8217;s\nleadership encourages the growth of startups in India.<\/p>\n\n\n\n<p>After getting drastic response from the investor fraternity, the government had promised to waive off the Angle Tax as soon as possible.&nbsp; In 2019, the Indian Government had decided to make some mandatory changes to the angel tax to make it more conducive for startups.<\/p>\n\n\n\n<p class=\"text-left\"><b>Read our article<\/b>:<mark style=\"background: #fffd03 !important;\"><a href=\"https:\/\/corpbiz.io\/learning\/benefits-of-startup-india-registration-in-india\/\">Benefits of Startup India Registration in India<\/a><\/mark><\/p>\n\n\n\n<h2 class=\"wp-block-heading\"><span class=\"ez-toc-section\" id=\"What_is_an_Angel_Investment\"><\/span>What is an Angel Investment?<span class=\"ez-toc-section-end\"><\/span><\/h2>\n\n\n\n<p>Angel investment is\nregarded as a form of initial funding done by the Angel investor to help\nstartups build their business. Not all the companies have ample funds to start\ntheir business journey, and that&#8217;s where Angel investor comes into the picture.\nTheir role is providing much-needed funds to startups that are struggling with\nprocuring adequate capital to kick start their business operation. Such an\ninvestor examines the feasibility of the business idea of different startups\nand then starts investing accordingly. Such investments are made against the\nequity or convertible debt, the return of ownership of the startups.<\/p>\n\n\n\n<h2 class=\"wp-block-heading\"><span class=\"ez-toc-section\" id=\"What_is_an_Angel_Tax_for_Startups\"><\/span>What is an Angel Tax for Startups?&nbsp;<span class=\"ez-toc-section-end\"><\/span><\/h2>\n\n\n\n<p>Angel Tax for Startups is generally referred to as the income tax payable on investment procured by the unlisted companies through the issuance of shares where the share price is seen in excess of FMV (Fair Market Value) of the shares sold. The excess realization is considered as income &amp; taxed accordingly. Investment from overseas investors &amp; venture capitalist funds does not come under the regime of this tax structure.<\/p>\n\n\n\n<div class=\"wp-block-image\"><figure class=\"aligncenter is-resized\"><img decoding=\"async\" src=\"https:\/\/corpbiz.io\/learning\/wp-content\/uploads\/2021\/02\/What-is-an-Angel-Tax-for-Startups.png\" alt=\"What is an Angel Tax for Startups\" class=\"wp-image-26374\" width=\"456\" height=\"452\" srcset=\"https:\/\/corpbiz.io\/learning\/wp-content\/uploads\/2021\/02\/What-is-an-Angel-Tax-for-Startups-150x150.png 150w, https:\/\/corpbiz.io\/learning\/wp-content\/uploads\/2021\/02\/What-is-an-Angel-Tax-for-Startups-300x298.png 300w\" sizes=\"(max-width: 456px) 100vw, 456px\" \/><\/figure><\/div>\n\n\n\n<h2 class=\"wp-block-heading\"><span class=\"ez-toc-section\" id=\"What_is_the_Fundamental_Issue_with_Angel_Tax_for_Startups\"><\/span>What is the Fundamental Issue with Angel Tax for\nStartups?<span class=\"ez-toc-section-end\"><\/span><\/h2>\n\n\n\n<p>The primary issue with\nthis tax is that it is levied only when the investment comes from the local\ninvestors. This acts as a major deterrent to investors who are interested in investing\nmore money for the sake of higher return. Besides, the higher taxable rate\nmakes this tax structure unfavorable for the growth of startups. <\/p>\n\n\n\n<h3 class=\"wp-block-heading\">Rate of Interest under Angel Tax for Startups<\/h3>\n\n\n\n<p>Angel Tax for Startups\nis imposed at the max marginal rate of 30%. This particular tax rate becomes a\nheadache for investors and the receiver as they lose 1\/3 of the investment in\ntaxes.&nbsp;&nbsp;<\/p>\n\n\n\n<h2 class=\"wp-block-heading\"><span class=\"ez-toc-section\" id=\"Why_Angel_Tax_for_Startups_is_Deterrent_to_the_Business_Fraternity_and_Investors\"><\/span>Why Angel Tax for Startups is Deterrent to the Business\nFraternity and Investors?&nbsp;<span class=\"ez-toc-section-end\"><\/span><\/h2>\n\n\n\n<p><strong><em>A few reasons why startups are\nnot in favor of angel tax are as follows:-<\/em><\/strong><\/p>\n\n\n\n<ul><li>The process that firms use for the calculation of their market value varies a lot from the Government&#8217;s method. The Government often put various essential factors out of the equation while calculating the company&#8217;s market value, which eventually leads to substantial price variations. This further forced the concerned parties to pay higher taxes than usual.<\/li><li>Under Angel tax, the startups end up contributing a significant part of their investment towards taxes. Furthermore, it is also turn out to be disruptive for the industry&#8217;s growth. The stringent tax rate under this tax structure discourages investors from disbursing big funds to small firms. Angel tax has hampered the development of the startups, leaving the enthusiastic business owners dispirited.<\/li><li>After getting negative feedback from the investment community, India&#8217;s <strong><em>Government<\/em><\/strong><sup><a href=\"https:\/\/en.wikipedia.org\/wiki\/Government\"><strong><em>[1]<\/em><\/strong><\/a><\/sup> has finally made some relevant amendments to the laws to make the tax structure less stringent to entrepreneurs and investors.<\/li><\/ul>\n\n\n\n<h2 class=\"wp-block-heading\"><span class=\"ez-toc-section\" id=\"What_Amendments_did_the_Indian_Government_made_to_Angel_Tax_for_Startups\"><\/span>What Amendments did the Indian Government made\nto Angel Tax for Startups?<span class=\"ez-toc-section-end\"><\/span><\/h2>\n\n\n\n<p><strong><em>Following are the changes made by the Indian Government to control this chaotic situation:<\/em><\/strong><\/p>\n\n\n\n<ul><li>Companies\nthat completed ten years of their service life from their registration date\nwould be deemed startups. Earlier, this limit was capped at seven years. It\npermits the startup to avail tax exemption as per the IT laws for the\nadditional three years.<\/li><li>The\nentity will continue to serve as startup if it does not reap a turnover of more\nthan 100 crores in any financial year. Previously the turnover limit was set at\nRs 25 crore. This enables startups to thrive even more.<\/li><li>The\nIT Department issues a notice regarding the waiver of angle tax for the\nstartups, provided they satisfied the specific conditions.<\/li><\/ul>\n\n\n\n<h2 class=\"wp-block-heading\"><span class=\"ez-toc-section\" id=\"What_are_the_Conditions_to_Get_Exempt_from_Angel_Tax\"><\/span>What\nare the Conditions to Get Exempt from Angel Tax?<span class=\"ez-toc-section-end\"><\/span><\/h2>\n\n\n\n<p><em><strong>Following are the conditions that the startups should meet to avail exemption regarding the angel tax:<\/strong><\/em><\/p>\n\n\n\n<ul><li>The\npaid-up capital &amp; the firm&#8217;s share premium must not surpass the max- limit\nof Rs 10 crore after the issuance of the shares.<\/li><li>The\nstartup must seek assistance from certified merchant bankers for the\ncalculation of the market value.&nbsp;&nbsp;<\/li><li>The\nmini. net worth of the investor should not be less than Rs 2 crore.\nFurthermore, the investor&#8217;s income in each of the preceding three years should\nnot be less Rs 50-lakh. If a person ensures conformity with such requirements,\nthen only he\/she qualifies as an angel investor.<\/li><\/ul>\n\n\n\n<h2 class=\"wp-block-heading\"><span class=\"ez-toc-section\" id=\"Concluding_Words\"><\/span>Concluding Words<span class=\"ez-toc-section-end\"><\/span><\/h2>\n\n\n\n<p>Although the change described above comes as a relief to startups and young entrepreneurs, the Government has many more issues to fix to ensure the seamless growth. Heavy taxation act as barrier for the development of the startups as well as the angel investors. The startup community is anticipating further deduction in the tax slab from the government in the upcoming years.&nbsp; <\/p>\n\n\n\n<p class=\"text-left\"><b>Read our article<\/b>:<mark style=\"background: #fffd03 !important;\"><a href=\"https:\/\/corpbiz.io\/learning\/process-of-startup-india-registration-online\/\">Process of Startup India Registration: A Step by Step Guide<\/a><\/mark><\/p>\n","protected":false},"excerpt":{"rendered":"<p>BJP governance has a proven track record for promoting technology and industrial growth. In the continuation of such objectives, the Government had come up with another scheme called Startup India to create a business-friendly environment for the new companies and the investors. The scheme aims to promote new ideas and concepts coming from startups. The [&hellip;]<\/p>\n","protected":false},"author":22,"featured_media":26373,"comment_status":"open","ping_status":"closed","sticky":false,"template":"","format":"standard","meta":[],"categories":[968],"tags":[1553],"acf":{"service_id":"250"},"authorName":"Pankaj Tyagi","authorImageUrl":"https:\/\/corpbiz.io\/learning\/wp-content\/uploads\/2022\/01\/MicrosoftTeams-image-42.jpg","authorDescription":"Pankaj has a diverse experience of writing research papers, blog, and articles during his college time. Earlier, he was working as a tax consultant in a financial firm, but his interest in writing drives him to pursue a career in the writing field.","postViews":3421,"readingTime":4,"_links":{"self":[{"href":"https:\/\/corpbiz.io\/learning\/wp-json\/wp\/v2\/posts\/26341"}],"collection":[{"href":"https:\/\/corpbiz.io\/learning\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/corpbiz.io\/learning\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/corpbiz.io\/learning\/wp-json\/wp\/v2\/users\/22"}],"replies":[{"embeddable":true,"href":"https:\/\/corpbiz.io\/learning\/wp-json\/wp\/v2\/comments?post=26341"}],"version-history":[{"count":15,"href":"https:\/\/corpbiz.io\/learning\/wp-json\/wp\/v2\/posts\/26341\/revisions"}],"predecessor-version":[{"id":37365,"href":"https:\/\/corpbiz.io\/learning\/wp-json\/wp\/v2\/posts\/26341\/revisions\/37365"}],"wp:featuredmedia":[{"embeddable":true,"href":"https:\/\/corpbiz.io\/learning\/wp-json\/wp\/v2\/media\/26373"}],"wp:attachment":[{"href":"https:\/\/corpbiz.io\/learning\/wp-json\/wp\/v2\/media?parent=26341"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/corpbiz.io\/learning\/wp-json\/wp\/v2\/categories?post=26341"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/corpbiz.io\/learning\/wp-json\/wp\/v2\/tags?post=26341"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}