DPIIT's Call for Removal of Angel Tax Ahead of Union Budget

Ahead of the Union Budget, the DPIIT has recommended the removal of angel tax on startups. A senior official mentioned that an integrated view will be taken by the finance ministry. The 2023-24 fiscal Budget widened the ambit of angel tax to include foreign investments. Meanwhile, guidelines for EVs are being finalized.

In the lead-up to the Union Budget, the Department for Promotion of Industry and Internal Trade (DPIIT) has urged the removal of angel tax on startups, according to a senior government official. However, the final decision will rest with the finance ministry.

Last September, new angel tax rules were introduced by the Income Tax Department, establishing a mechanism to evaluate shares issued by unlisted startups to investors. Previously, this tax—which is levied on capital received from the sale of startup shares above fair market value—applied solely to local investors. The Budget for the 2023-24 fiscal year has expanded its scope to include foreign investments.

Responding to industry demands for the angel tax's removal, DPIIT Secretary Rajesh Kumar Singh stated, "Based on our consultation with the startup ecosystem, we have recommended removing the angel tax before and have done so again. Ultimately, the Ministry of Finance will make an integrated decision." According to the Budget, the excess premium will be taxed as 'income from sources' at rates exceeding 30%. However, DPIIT-registered startups are exempt from these new rules.

In a related query on Tesla, Singh noted that contact from the company had been received around the time of the general election results. Singh added that the Ministry of Heavy Industries is in the process of finalizing guidelines for electric vehicles, following more than one inquiry.

In June, shortly after the election results, Elon Musk praised Prime Minister Narendra Modi's victory and expressed his eagerness for his companies to undertake 'exciting work' in India. Musk, who postponed his planned April visit due to Tesla obligations, intends to visit India later this year.

(Disclaimer: With inputs from agencies.)