Budget 2024: Centre abolishes angel tax in a major boost for startup ecosystem

Venture investors hailed the proposed abolition of the decade-old angel tax as “a huge reform” announced by Finance Minister Nirmala Sitharaman in the Union Budget for 2024-25.

First introduced in 2012, by then finance minister Pranab Mukherjee, Section 56 (2) (viib) of the Income Tax Act-- known as angel tax-- is applicable on any amount received by a privately held company against sale of its shares at a price higher than its fair market value. The differential amount is treated as income and taxed at a rate of around 31%.

Startup industry leaders have long argued that it placed an undue financial and compliance burden on young ventures and deterred the growth of genuine risk capital for the fast-growing industry.

” It took twelve years, but the startup Industry can heave a sigh of relief that the dreaded angel tax has been removed,” said Siddarth Pai, founding partner at early-stage venture fund 3one4 Capital noting that its abolition “is essential for startups to remain in India and build from here.”


The provisions through which angel tax is imposed will cease to be in force with effect from April 1, 2025, as per the Finance Bill.

Startup founders point to the burden of compliance and harassment by officials as more burdensome than the actual taxation.

“No one wanted to go through this pain, and it deterred many investment deals over the years,” said one founder who has represented the industry’s case to the government.

While the tax was primarily intended to deal with money laundering, in practice it turned out to be a tax on private capital for startups. It drew concerted opposition from the industry, more so as subsequent regulation had plugged the tax evasion loopholes.

"Given the mandatory dematting of securities, Section 68, disclosure of unlisted investments in tax returns has plugged the transparency gap for which angel tax was created,” Snapdeal cofounder Kunal Bahl, said.

Also read: ET Explainer: What is angel tax and why has DPIIT sought its removal?

Earlier this month, DPIIT secretary Rajesh Kumar Singh noted that the recommendation to abolish the angel tax was made after “consultations with the startup ecosystem.”

“Finally, it is good to see angel tax abolished…Long overdue. So much harassment, headache, unwanted anguish for startup founders, angel investors…” said serial entrepreneur K Ganesh said in a post on X.