In the latest move towards restructuring the startup sector, Finance Minister Nirmala Sitharaman announced the abolition of angel tax for all investor classes during the Union Budget 2024-25 presentation. This notable decision is expected to bring a breath of fresh air to the startup ecosystem and foster an environment more conducive to investments and growth.
Repeal of the angel tax: what does it mean?
The long-awaited abolition of angel tax is a major win for startups and investors alike. What does this mean for the investor base? How will this move impact the startup funding dynamics in India? The reform removes a major hurdle for investors and is likely to open up new opportunities for capital infusion and growth in the startup sector.
Earlier speculation about the removal of angel tax was confirmed when DPIIT Secretary Rajesh Kumar Singh approved the proposal just days before the budget announcement. The call for repeal comes as part of a broader effort to support the startup ecosystem, which has faced recent challenges, including a sharp decline in funding.
Startup Budget: Key Suggestions for Startups
In addition to scrapping angel tax, the Finance Minister also extended the tax holiday for eligible startups by one year. The deadline for incorporation to avail tax benefits under the Startup India scheme, which was earlier set to expire on March 31, 2024, has now been extended to March 31, 2025. This measure aims to provide an opportunity for more startups to avail the tax holiday benefits.
Current state of the startup ecosystem
Despite government efforts to strengthen the startup ecosystem, recent trends have shown a downward trend in funding: in 2023, funding for Indian startups plummeted to $8.8 billion from $25 billion in 2022. The number of unicorns also fell significantly, with only two new unicorns formed in 2023 compared to 23 in 2022.
Several initiatives have already been introduced in the Union Budget 2023-24, including extension of incorporation date for tax benefits and extension of tax loss carryforward period. These measures, along with the abolition of the new angel tax, demonstrate the government’s commitment towards nurturing the startup ecosystem.
India’s growing startup ecosystem
India has one of the largest startup ecosystems in the world, ranking third globally and among the best in quality of innovation among middle-income countries. Initiatives such as Startup India Scheme, Fund of Funds for Startups (FFS), Startup India Seed Fund Scheme (SISFS) and Credit Guarantee Scheme for Startups (CGSS) provide continuous support to startups at various stages.
With this latest budget announcement, the Indian startup ecosystem is set to undergo a transformation. The abolition of angel tax is expected to boost investor confidence and drive a renewed focus on innovation and growth. Stay tuned as we continue to share more about how this major change will unfold and impact the future of startups in India.
