The abolition of the contentious angle tax is set to significantly boost India’s start up ecosystem, according to Central Board of Direct Taxes (CBDT) Chairman Ravi Agarwal.

In a post-budget interview with PTI, Agarwal emphasized that this move will encourage more investments and innovation in the country.

“Please come forward; please invest as the country is waiting for your investment, initiatives, and innovations,” Agrawal urged investors.

Finance Minister Nirmala Sitharaman announced the abolition of the angel tax in her latest budget speech, marking a significant policy shift to foster a more supportive environment for start-ups and investors.

The angle tax, or Section 56(2) (VII-b) of the Income Tax Act, 1961, was introduced in 2012 to prevent money laundering through shell companies. However, over the years, it evolved into a major obstacle for start-ups. Tax authorities began questioning the valuation methods of start-ups’, resulting in numerous tax notices and creating a climate of uncertainty for entrepreneurs and investors alike. The start-ups community has long called for the removal of this tax, arguing that it stifles innovation and investments.

“To bolster the Indian start-ups ecosystem, boost the entrepreneurial spirit and support innovation, I propose to abolish the so-called angel tax for all classes of investors,” Sitharaman declared.

 

Agrawal acknowledged these concerns, noting that tax abolition addresses a key demand in the start-up environment. He assured that adequate measures are in place to handle potential issues of money laundering even in the absence of the angel tax. “The intention was never to dissuade start-ups or halt investments. We are in coordination with the Department for Promotion of Industry and Internal Trade (DPIIT) and have provided relaxations concerning investments,” he explained.

The move has been broadly welcomed by the start-up community, which sees it as a significant step towards creating a more conducive environment for growth and innovation. However, there are still concerns about pending cases related to the angle tax. Mohandas Pai, former CFO of Infosys and partner at Aarin Capital emphasized the need for the government to resolve these outstanding issues. “The Government must now withdraw all cases pending under angle tax in the last five years and state clearly that no angle tax will be levied on any pending assessments,” Pai told Inc42.

The abolition of the angle tax is expected to usher in a new era of growth for the Indian start up ecosystem, encouraging both domestic and international investors to participate more actively in the country’s burgeoning innovation landscape. This landmark decision underscores the government’s recognition of the critical role start-ups play in driving economic growth and job creation in India.