Angel Tax provisions in Finance Bill will not impact startups, says govt official

Foreign investors are also proposed to be included in the ambit of taxation, wherein a startup raising funding from a foreign investor will also be liable to pay income tax if the funds are received above the face value of shares.

Startups were rattled because of the proposed changes in regulations in the Finance Bill. Image Source: Pixabay

The 'angel tax' provision in the Finance Bill will not impact startups in India, a senior government official said on Tuesday. Startups which are registered with the Department for Promotion of Industry and Internal Trade do not come under the purview, Anurag Jain, the secretary in the department said while speaking at the IVCA Conclave here.

"Let me put one thing very clearly. It doesn't affect startups in the least," he said, addressing the audience at the event organized by the venture capital industry lobby grouping. He said there is a "clear provision" which says that startups which are recognized by DPIIT are out of the proposal's purview, and added that the startup recognition process is also very simple where any applicant gets it automatically.

Startups were rattled because of the proposed changes in regulations in the Finance Bill through the amendments in Section 56(2) VII B of the Income Tax Act. Foreign investors are also proposed to be included in the ambit of taxation, wherein a startup raising funding from a foreign investor will also be liable to pay income tax if the funds are received above the face value of shares.

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Without specifying, Jain said there are other issues which have been raised by the venture investing community and the same have been put forth before the Department of Revenue for a review. He said we need to look at how to mobilize domestic capital further into the startups and new-age companies.

There have already been changes on this front, including allowing long-term pension and insurance funds to invest in alternative investment funds. He said by 2047, India will be a developed country and a realistic estimate pegs the size of the economy to be USD 30 trillion which can be the second biggest in the world.

"Growth will be driven by knowledge, sustainability and innovation," he said, adding that startups provide right solutions across all three. In 2022, adverse geopolitical events followed by macroeconomic headwinds resulted in a fall in the funding for Indian startups, Jain said, stressing that the country is relatively better placed when compared with others.

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