The Department for Promotion of Industry and Internal Trade (DPIIT) has reportedly expressed concerns about the impact of the Angel Tax in the Finance Bill 2023 on India’s startup community to the finance ministry.
The Angel Tax covers investments in any private business entity and DPIIT fears the proposal to withdraw exemptions from foreign investors, effective from April 2024, could worsen the impact of funding shortages on Indian entrepreneurs. DPIIT is worried that foreign investors may avoid the Indian market, leading to a negative impact on the country’s startup ecosystem.
According to an official familiar with the situation, DPIIT has been in discussions with the revenue and economic affairs department, as funds raised on a startup’s market valuation also increase its tax liability. Despite there being 64 amendments to the proposed draft, the Finance Bill has not addressed the startup community’s concerns related to the provisions of the Angel Tax introduced in the Union Budget 2023-24.
However, DPIIT Secretary Anurag Jain dismissed negative speculations about the new amendment proposal to Angel Tax, saying that it would not affect startups recognized by DPIIT. Despite Jain’s comments, T V Mohandas Pai, Partner at Aarin Capital and former CFO of Infosys, called the budget a big disappointment for startups. Pai said that startups had hoped for a reduction in the long-term capital gains tax and for ESOP taxation at the time of sale, but neither proposal had been included.