The startup community remains estranged as the Finance Ministry doesn’t offer any significant respite to the proposed angel tax regime to be imposed on money raised from foreign investors. The Finance Ministry said in the amendment presentation on March 24 that it will address the concerns raised by startups and issue draft rules on valuation and exemptions for taxation on receiving investments from foreign investors. The tax will be applicable from the coming financial year starting on 1 April 2023.
The government introduced the ‘angel tax’ in 2012 where any unlisted company receiving funds from a resident investor for the issue of equity shares that exceed the face value of such shares would fall under the category of income for the startup and levy income tax under the ‘Income from other Sources’ as per Section 56(2) VII B of Income Tax Act.
Siddharth Pai, founding partner of 3one4 Capital has said, “With the passing of the Finance Bill, 2023, the applicability of angel tax on foreign investors has been cemented.” He also added that the startup ecosystem is in hopes the centre announces exemptions to be provided from international institutional investors like sovereign funds, and VC funds via a notification before April. The current scenario has been tough on startups seeking funding due to the ongoing funding winter amid geopolitical instability.
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