Context:
Recently, the Union Minister for Finance proposed to abolish ‘angel tax’ for all classes of investors, while presenting the Union Budget 2024-25 in Parliament.
Relevance:
GS III: Indian Economy
Angel Tax
Definition:
- Angel Tax refers to the tax levied on the capital raised by unlisted companies from Indian investors when the share price issued is above the fair market value of the company. The excess funds raised at prices above fair value are treated as income, subject to tax.
Legal Basis:
- Genesis: Section 56(2)(viib) of the Income Tax Act, 1961.
- Introduction: Introduced in 2012 to curb black money laundering through inflated share sales.
Tax Rate:
- Rate: 30.9% on net investments exceeding the fair market value.
Exemption for Startups (2019):
- Conditions for Exemption:
- Recognition: The startup must be recognized by the Department for Promotion of Industry and Internal Trade (DPIIT) as an eligible startup.
- Capital Limit: The aggregate amount of paid-up share capital and share premium cannot exceed ₹25 crores. This excludes money raised from Non-Resident Indians (NRIs), Venture Capital Firms, and specified companies.
Investor Conditions:
- Tax Exemption: Angel investors can claim a 100% tax exemption on the amount invested that exceeds the fair market value.
- Eligibility: The investor must have:
- Net Worth: ₹2 crores or more.
- Income: More than ₹25 lakhs in the past 3 fiscal years.
Purpose:
- Objective: To prevent the misuse of share valuations to launder black money by imposing taxes on the excess amounts raised above fair market values.
-Source: The Hindu
