In a significant move set to energize India's startup ecosystem, Union Finance Minister Nirmala Sitharaman announced the abolition of the decade-old angel tax during the presentation of the 2024-25 Union Budget. Venture investors have hailed this proposed change as 'a huge reform'.

Introduced in 2012 by then Finance Minister Pranab Mukherjee, Section 56(2)(viib) of the Income Tax Act, known as the angel tax, applied to any amount received by a privately held company from the sale of its shares at a price above their fair market value. The differential amount was considered income and taxed at approximately 31%.

For years, startup leaders have criticized the angel tax for placing excessive financial and compliance burdens on young ventures, thereby hindering the growth of genuine risk capital in the rapidly expanding industry.

"It’s taken twelve years, but the startup ecosystem can finally breathe a sigh of relief that the angel tax is gone," said Siddarth Pai, founding partner at early-stage venture fund 3one4 Capital. He emphasized that its abolition is "imperative for startups to continue staying in India and building out of here".

The removal of the angel tax is expected to significantly reduce the financial and regulatory pressures on startups, fostering more investments and creating a supportive environment where innovation and growth can thrive within India’s startup landscape.