As part of a move to widen the pool of capital available to startups and speed up the closing of funding rounds, angel tax has been scrapped for all classes of investors. “This will make it much easier to complete deals faster and streamline the investment process. Earlier, IT people had to understand and assess valuation, which led to unnecessary conflicts and delays. Valuation assessment did not fall within the purview of IT people. This change will remove such complexities,” said Anirudh A Damani, managing partner, Artha Venture Fund.
Razorpay CFO Arpit Chag said investors who were previously reluctant to put money into companies out of concern that a large portion of their funds would be taxed will now be more willing to put money into early-stage startups. Khurmani Rana, founder of startup accelerator Fibonacci Global, said he expects the number of active investors in the country to increase by 10-20 percent as a result of the policy change. An angel tax of 30.6 percent was imposed on unlisted companies if they issued shares at a price higher than the fair market value.
Startups are primarily valued based on their future prospects. “Apart from potential constraints on cash flows, the angel tax has created a host of challenges in fundraising efforts. The situation has worsened since the tax was imposed on foreign investments last year,” said Anisha Patnaik, angel investor and founder of LexStart Partners.
