Sitharaman’s move to scrap angel tax gets cheers from start-up community

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Published: August 26, 2019 5:18:20 PM

In a long-anticipated move, the Indian government scrapped angel tax for start-ups last week and the same has garnered positive reaction from various industry entrants.

start ups, angel tax, finance minister, nirmala sitharamanThe Union government relaxed angel tax related rules to help start-ups.

In a long-anticipated move, the Indian government scrapped angel tax for start-ups last week and the same has garnered positive reaction from various industry entrants. The move is expected to bolster investment in India’s entrepreneurial ecosystem as angel tax had caused an obstacle for both investors and start-up community, said Roma Priya, Founder of Delhi-based Burgeon Law. Further, the start-up community hopes that Sitharaman’s move will provide a fillip to domestic investment. 

As the economy reels under economic slowdown, the BJP government has long been under pressure to revv up economy. Among a slew of measures, Sitharaman announced that in order to mitigate the problems of start-ups, the government has decided that the section 56 2(b) will no longer be applicable to start-ups that are recognised by DPITT. As of now, DPITT recognises about 21,235 start-ups in India. 

Nirmala Sitharaman also announced the setting up of a dedicated cell under CBDT member in order to address the problems faced by start-ups and to deploy quick resolution for the same. The government also looks at resolving income tax issue with the dedicated cell, Sitharaman added. 

Stating the need for removal of angel tax, Dipali Mathur Dayal, Founder & CEO, The Natturel and Kool Pvt Ltd said that till now, both parties — start-ups and investors — have been reluctant to raise funds. However, now, there will be easing of the angel round. “In the current law a person with less than Rs 50 lakhs of tax return and Rs 2 crore of net worth was not eligible to invest as angel,” she said. Prior to the announcement of Friday, there was a lack of clarity about the start-up ecosystem and the available provisions were very interpretational, said Suresh Rangarajan, CEO Colive. He added that the previous provisions could have created more challenges to the investment sentiment which is already ailing.

India is one of the fastest-growing start-up producers in the world and is soon expected to become the world leader in churning out unicorns. 

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