Angel Tax Exemption limited to 21 Nations Investors only

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The Finance Ministry of India has issued a notification stating that investments made by twenty-one countries in Indian start-ups will be exempted from Angel Tax. The list of countries includes the United States, the United Kingdom, France, and several others. The Central Board of Direct Taxes (CBDT) has notified that non-resident investments in unlisted Indian start-ups from these countries will not be subject to Angel Tax.

List of Nations eligible for Angel Tax Exemption in India

  1. US,
  2. UK,
  3. Australia,
  4. Germany,
  5. Spain,
  6. Austria,
  7. Canada,
  8. Czech Republic,
  9. Belgium,
  10. Denmark,
  11. Finland,
  12. Israel,
  13. Italy,
  14. Iceland,
  15. Japan,
  16. Korea,
  17. Russia,
  18. Norway,
  19. New Zealand,
  20. Sweden,
  21. France.

CBDT Eases Angel Tax Rules for Startups

The Indian government included overseas investment in unlisted closely held companies, excluding DPIIT recognized startups or businesses having Startup India Certificate, in the Angel Tax regulation through the Union Budget.

In response to this, the startup and venture capital industry requested exemptions for specific classes of overseas investors.

On May 24, the CBDT announced the categories of investors that would be exempt from the Angel Tax provision.

Entities exempted from the provision include those registered with Sebi as Category-I FPI, Endowment Funds, Pension Funds, and broad-based pooled investment vehicles.

These entities must also be residents of 21 specified nations mentioned above.

The CBDT notification will be effective from April 1.

Must Learn: Benefits Of Startup India Certification

What is Angel Tax in India?

Angel tax is a tax levied on unlisted companies in India that receive investment from angel investors. The tax rate is currently 30.9%.

The tax was introduced in 2012 in an effort to prevent money laundering and other illegal activities.

However, the tax has been criticized by the startup community, who argue that it is a disincentive to investment and stifles innovation.

The government has taken some steps to ease the burden of the tax on startups, but the tax remains a significant challenge for the startup ecosystem.

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Understanding the Process of Paying Angel Tax in India

The startup must first determine whether it is liable to pay angel tax. This is determined by whether the startup has received investment from an angel investor and whether the investment exceeds the fair market value of the shares issued by the company. You can also take assistance from a professional CA from our team.

  • If the startup is liable to pay angel tax, it must do ITR Filing with the Income Tax Department. The return must include the amount of investment received from the angel investor and the fair market value of the shares issued.
  • The startup must pay the angel tax along with the income tax return. The tax rate is currently 30.9%.

The startup may be able to claim a deduction for the angel tax paid on its income tax return.

The deduction is available for investments received from angel investors who are residents of India.

Also Read:

Seed funding for startups in india

Moreover, If you want any other guidance relating to the Angel Tax Exemption, Startup India Certificate, ITR Filing, please feel free to talk to our business advisors at 8881-069-069.

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