India's angel tax ambit narrows; investment from 21 countries exempted

Angel tax is levied on unlisted companies in India that receive investments from angel investors. The tax is levied on the amount of the investment that exceeds the fair market value of the shares issued by the company.

The list excludes the Netherlands, Mauritius and Singapore, Cyprus, the United Arab Emirates and Cayman Islands.

Some experts, however, feel the decision not to exempt funds from these countries will limit the benefit of the notification for Indian start-ups.

The government had earlier expanded scope of the angel tax to include investment from foreign investors.

In the last union budget, the government brought overseas investment in unlisted closely-held companies, except start-ups recognised by the department for promotion of industry and internal trade under the angel tax net.

Since then, the start-up and venture capital industry have been seeking exemption for certain overseas investor classes.

Experts had earlier said start-ups facing angel tax notices have to pay 25 per cent investment raised as tax and twice that as penalty for violating the exemption conditions.

The Central Board of Direct Taxes (CBDT) recently notified classes of investors that would not come under the angel tax provision. Excluded entities include those registered with the Security and Exchange Board of India (SEBI) as category-I FPI, endowment funds, pension funds and broad-based pooled investment vehicles, which are residents of 21 specified nations.

The government had proposed a host of changes late last week to tax levied on angel investors in unlisted entities, including expanding the scope of valuation methodologies.

ALCHEMPro News Desk (DS)