Are you curious to know what is angel tax? You have come to the right place as I am going to tell you everything about angel tax in a very simple explanation. Without further discussion let’s begin to know what is angel tax?
Angel Tax, a term that resonates within the entrepreneurial landscape, has been a topic of discussion and debate in India. This article aims to provide a detailed and knowledgeable exploration of what Angel Tax is, its impact on startups, and recent developments in its regulatory framework.
What Is Angel Tax?
Angel Tax, officially known as the Section 56(2)(viib) of the Income Tax Act in India, is a provision that aims to curb money laundering by taxing capital raised by unlisted companies at rates applicable to income tax. In the startup ecosystem, it specifically targets the valuation of shares issued by startups when they receive funding from angel investors.
Angel Tax Example:
Consider a startup valued at Rs. 10 crores receiving an investment at a premium, taking its valuation to Rs. 30 crores. Angel Tax may be applicable on the difference between the fair market value and the issue price of the shares. If the fair market value is deemed higher than the investment received, the excess amount is subject to taxation.
What Is Angel Tax For Startups?
Angel Tax for startups is a challenge that arises when they receive funding at a premium, and the tax authorities scrutinize the valuation. The taxation occurs when the fair market value of the shares issued exceeds the investment received, leading to taxation on the excess amount.
Angel Tax Is Direct Or Indirect:
Angel Tax is considered an indirect tax as it affects the valuation of shares issued by startups, impacting their taxable income. It indirectly influences the financial standing of startups and their ability to attract investments.
What Is Angel Tax In Hindi?
In Hindi, Angel Tax is referred to as “एंजेल टैक्स.” The term encompasses the taxation of excess valuation in shares issued by startups and has implications for the Indian entrepreneurial ecosystem.
Who Pays Angel Tax?
Startups receiving funding at a premium and angel investors investing in these startups are directly impacted by Angel Tax. The burden of complying with the tax regulations and addressing valuation scrutiny falls on both startups and the investors.
Angel Tax Introduced In India:
Angel Tax was introduced in India to address concerns related to money laundering and the inflow of unaccounted funds. However, its application to startups, particularly in cases where valuations are subjective, has been a point of contention within the entrepreneurial community.
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Is Angel Tax Abolished In India?
The Indian government has taken steps to address the concerns raised by startups and investors regarding Angel Tax. While it has not been entirely abolished, there have been amendments and clarifications to the regulations to provide relief to genuine startups. The intent is to foster a more supportive environment for entrepreneurship.
What Is Angel Tax:
In essence, Angel Tax is a provision aimed at ensuring transparency and preventing the misuse of funds in the startup ecosystem. While its introduction had raised concerns among startups, ongoing efforts by the government seek to strike a balance between regulatory requirements and the growth aspirations of startups.
Conclusion:
Angel Tax, with its implications on startup valuations and investments, continues to be a topic of discussion and regulatory evolution in India. Understanding its nuances is crucial for startups, investors, and policymakers alike as they navigate the dynamic landscape of the Indian startup ecosystem.
FAQ
What Is Angel Tax Upsc?
Angel tax – which is income tax at the rate of 30.6 per cent – is levied when an unlisted company issues shares to an investor at a price higher than its fair market value. Earlier, it was imposed only on investments made by a resident investor.
Is Angel Tax Applicable In India?
The angel tax is levied at the rate of 30% in India, and an additional cess of 3% is also applicable to it as per section 56(2)(vii)(b) of the Income Tax Act, 1961. The effective rate of the angel tax is 30.9%. It is extremely important to maintain your accounts and plan your taxes.
How To Avoid Angel Tax?
The notification aims to exempt private limited companies recognized as startups by the Department from the tax (commonly known as Angel Tax) only if the aggregate amount of paid up share capital and share premium of the startup after the proposed issue of shares does not exceed ten crore rupees.
Who Introduced Angel Tax In India?
Angel Tax, formally known as Section 56 (2) (vii b) of the Income Tax Act, taxes funds raised by startups if they exceed the fair market value of the company. It was introduced in 2012 by the UPA government in order to detect money laundering practices and catch bogus startups.
I Have Covered All The Following Queries And Topics In The Above Article
What Is Angel Tax In India
Angel Tax Example
What Is Angel Tax For Startups
Angel Tax Is Direct Or Indirect
What Is Angel Tax In Hindi
Who Pays Angel Tax
Angel Tax Introduced In India
Is Angel Tax Abolished In India
What Is Angel Tax