Angel tax will not be applicable on Indian startups, CBDT released list of 21 countries
Angel tax will not be levied on non-resident investments in unlisted Indian startups in 21 other countries including the US, UK, and France, according to the Finance Ministry's list. Angel tax was introduced by the government in the year 2012.
The Finance Ministry today released a list of 21 countries where non-resident investments in unlisted Indian startups will not attract angel tax.
The names of America, Britain, and France are also included in this list. At the same time, the names of countries like Singapore, Netherlands, and Mauritius have not been included in this list. This rule of CBDT is applicable from last April 1.
The Central Board of Direct Taxes (CBDT) yesterday notified categories of investors who would not be covered under the Angel Tax provision. Investors who are FPIs, endowment funds, pension funds, and broad-based investment vehicles who are residents of 21 specified countries including the US, UK, Australia, Germany, and Spain are not covered by the angel tax provision.
Apart from this, investors from other countries such as Austria, Canada, Czech Republic, Belgium, Denmark, Finland, Israel, Italy, Iceland, Japan, Korea, Russia, Norway, New Zealand, and Sweden have also been excluded.
By explicitly mentioning this list of countries, the government aims to attract more foreign investment (FDI) to India from countries that have a strong regulatory framework, said Rakesh Nangia, chairman, of Nangia Andersen India.
CBDT may bring valuation guidelines for the valuation of non-resident investment in unrecognized startups for the purpose of a levy of income tax. Under the existing norms, only investments by domestic investors or residents in closely held companies were taxed in excess of the fair market value.
The Finance Act, 2023 states that such investments over and above the FMV will be taxed whether the investor is a resident or a non-resident. Following the proposed amendments to the Finance Bill, concerns have been raised over the method of computing fair market value under two different laws.
The Angel Tax regime was introduced in 2012 to prevent money laundering. Angel investors invest in startups to take them forward. Under the angel tax regime, if the startup raises money from angel investors and this money is more than the fair value of the shares, then tax can be imposed in this situation.
