Government Unlikely to Remove Angel Tax Despite DPIIT Recommendations, Say Experts

Despite recommendations from the Department for Promotion of Industries and Internal Trade (DPIIT) for the finance ministry to eliminate the angel tax, experts believe the government is unlikely to heed these suggestions.

During a press briefing on Thursday, the DPIIT Secretary revealed that his department had recommended the removal of the angel tax to the finance ministry, as it had done in the past. “Ultimately, the decision has to be taken by the ministry,” he informed reporters.

Tax experts, however, think the government is unlikely to abolish the angel tax, which is imposed on unlisted companies raising capital through share issuance.

An expert told TNIE that while the issue has mostly been resolved, it remains a bureaucratic burden due to extensive documentation requirements. “Companies have come to terms with the paperwork, but the main issue has subsided,” he noted. Another expert echoed that significant changes to the angel tax are unlikely. Instead, the government may offer more exemptions rather than removing the tax altogether. She acknowledged the angel tax as an unnecessary hassle and burden, particularly for startups, especially since it now also applies to investments from non-resident investors. “The so-called exemptions do not benefit many businesses. As a tax professional, I hope the MOF accepts the DPIIT’s recommendation,” she added.

Introduced in 2012, the angel tax requires unlisted companies to pay tax on the capital raised through share issuance, calculated based on the premium amount received above the fair market value of the shares.

The IT industry body Nasscom has also raised concerns about the angel tax during its pre-budget meeting with the finance minister. Nasscom stated that very few startups can benefit from the angel tax exemption, and even when they do, the end-use restrictions on exempted investments hinder their business operations.