The informal venture capital market is composed of wealthy individuals, called business angels, who invest their own capital in young, unquoted firms. Business angels are generally successful entrepreneurs who look for outstanding investment opportunities in a segment of the market that is not covered by institutional investors. Thus, business angels fill an “equity gap” between the money entrepreneurs can raise from family members, their own savings or personal borrowings , and the investment venture capitalists may provide.
As startups turn out to be a major source of revenue and employment, governments from across the world have been going out of their way to facilitate the entrepreneurial dream. Even India has done its fair bit to support startup dreams by means of its flagship ‘Make in India’ programme or the ‘Startup India’ one. But even with all these schemes and options, one thing that is still a potential cause of worry is the so-called angel tax.
A number of startups have felt hardpressed in last months. The tax assessments have forced emergent ventures to spend time and resources on dealing with them, when they should be focusing on increasing their business; under the tax – introduced in 2012 but which has been imposed with some zeal in recent times – any investment raised from domestic angel investors above the fair value of a venture as determined by the CBDT will be taxed as income in the hands of the startup. The applicable tax rate is 30.9% levied on investments made by external investors in startups or companies: quite a high percentage, right?
Well, The Department of Industrial Policy and Promotion, working under the Ministry of Commerce and Industry of India -alias DIPP- is actively at work in order to let startups get small relief on angel tax hopefully with this anti-evasion measure from the government.
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