Angel tax abolition to further ease funding winter for Indian startups: Experts
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The abolition of angel tax will further ease the funding winter for the Indian startup ecosystem as the tax burden will go away for foreign investors, industry experts said on Friday.
The Department for Promotion of Industry and Internal Trade (DPIIT) has emphasised that the pipeline of funds should get better with abolition of the angel tax.
The Indian private equity and venture capital investments in 2023 stood at $39 billion compared to $62 billion in 2022. This decline was aggravated by the funding winter that began in 2022 and the implications of the angel tax, which was also levied on foreign investors.
According to Arpit Chug, Chief Financial Officer, Razorpay, despite these challenges, the startup ecosystem has significantly contributed to the country's GDP and has played a crucial role in putting India on the global map.
Chug said that this move is a major encouragement for startup investments, easing the tax burden, thereby paving the way for India to become a global innovation hub, led by startups.
The industry had sought rationalisation of angel tax by removing Section 56(2)(viib) in order to further nurture innovation among startups, saying scrapping this section would "greatly aid in capital formation" for the startup sector.
According to the DPIIT, venture capitalists and foreign investors will be a little more forthcoming with the move.
In the January-June period, Indian tech startups raised $4.1 billion, a 4 per cent increase from $3.96 billion in the second half of 2023. India remains the fourth-highest funded country globally in the tech startup landscape, according to Tracxn, a leading market intelligence platform.
Raj K Gopalakrishnan, Co-Founder and CEO, KOGO, said the angel tax exemption for investors, will go a long way in clearing out the funding winter in India.
According to him, it is going to enable change-hungry, homegrown startups to receive funding through domestic and foreign investments, creating more jobs in the country.
Whatfix, said the abolition of angel tax is a critical move, providing much-needed relief to startups during the funding winter.
Simplifying foreign direct investment (FDI) and overseas investment rules, along with promoting the Indian rupee for global transactions, will further bolster investor confidence, he added.
