Hey there my lovely people. How have you been doing?

And this time, not with boring introductions but what I believe is a good story that interested me the most. Last week, FM Nirmala Sitharaman announced the budget for FY 2024-25 and guess what,

Angel tax is the talk of the town!

It caught the attention of the entire Indian Startup Ecosystem and obviously, it caught my attention too. This announcement created quite a buzz, and my LinkedIn feed was flooded with posts about it. Almost everyone seemed thrilled. So, what exactly is Angel Tax, and why is the Indian startup community so happy about its demise?

So, what exactly is Angel Tax?

Angel Tax is a charge applied to the capital raised by unlisted companies when they issue shares at a price higher than the fair market value. Let me explain this with an easy example. Imagine you have a company whose fair market value is INR 5 crores and you receive an investment of INR 8 crores from an Angel investor in exchange for shares in your company. The excess amount of INR 3 crores here would be considered a premium and will be subject to tax at a rate of 30.9%, meaning almost 1/3rd of that 3 crores will go to the govt. But…

What was the need for it?

It was primarily introduced to curb money laundering. You see, not all of us are saints and some unlisted companies raised capital by issuing shares to domestic investors at a price exceeding the company's fair market value. The excess amount was considered income and was taxed at a rate of 30.6%. While the intention behind it was good and was to prevent the circulation of unaccounted money, it ended up creating rather significant challenges for startups.

What challenges?

Truth be told, the initiative like any other was formed with good intentions but every thing comes with it own disadvantages. And the disadvantages with this Tax is (are🥲)

1. Makes investor hesitate to invest in your Billion dollar idea.

2. Wrong valuations, compliance headache.

3. Several high growth potential startups suffocated because they did not get right money.

4. Investors invest to earn and save money in taxes, so why pay taxes for saving tax😂

Well, no brownie points to guess why the abolition of Angel Tax spread a wave of happiness across the Indian Startup Sector. This move by the government will foster a more vibrant & dynamic startup ecosystem, attract more investors, and drive economic growth and job creation. At least that’s what everyone is hoping for.

So, do you think this post added some value to your knowledge base? Help me with your response because that matters the most. Nothing would encourage me more than the fact that I provided some value to you.

Well, this is it for this post and I will get back to you very shortly with another interesting story.

Until then

Keep Pondering!