Finance Bill: No Relief For Startups As Angel Tax Goes Into Force From April 2024

The Indian government will impose an angel tax from 1 April 2024. As the Finance Bill 2023 was approved in Parliament on Friday, the Centre did not back down from its plan to impose an angel tax on startups.

Previously, many parties proposed exempting foreign company investments in startups from the Angel Tax regime. However, the Finance Bill 2023 says that the intention to implement an angel tax has not changed.

According to the finance ministry's background note, these adjustments will be effective for the fiscal year 2023-24 and the assessment year 2024-25.

The ministry promised stakeholders that their concerns about the proposal's implementation would be addressed and the draught valuation guidelines will be shared with stakeholders for feedback in April, according to the note.

Exclusions, such as those already granted to domestic Venture Capital Funds, will be considered for comparable overseas entities.

“The draught valuation rules will be shared with stakeholders for feedback in the following month, namely April. Exclusions, comparable to those already granted to domestic Venture Capital Funds, will be considered for analogous overseas entities,” the note added.

Stakeholders, including venture capitalists, have expressed concern about the negative effect of startup financing.

At the moment, an amendment to the Finance Bill 2023, implies that there is no exemption for foreign investors, and they must pay a tax on transactions. As a result, if startups collect funds from non-resident investors, the funds will be taxed as income.