The Union Budget 2024-25 introduced several measures aimed at fostering growth and development in India’s startup ecosystem. One of the most significant announcements was the complete abolition of the contentious angel tax.
The Angel Tax Conundrum
Angel tax, a term used to describe Section 56(2)(viib) of the Income Tax Act, has been a major hurdle for startups seeking funding. It imposed a 30.9% tax on the difference between the fair market value and the issue price of shares issued to investors. This often led to disputes, delays, and a deterrent for investors.
A New Era for Startups
The government’s decision to abolish angel tax is a major win for the startup community. It is expected to:
- Attract more investment: With the removal of the tax, investors will be more inclined to fund Indian startups, leading to increased capital inflow.
- Accelerate growth: Startups can now focus on scaling their businesses without the fear of angel tax scrutiny.
- Boost job creation: Increased investment in startups will lead to job creation and economic growth.
Alignment of Capital Gains Tax
Another crucial announcement was the alignment of long-term capital gains tax rates for listed and unlisted equity at 12.5%. This move is expected to:
- Encourage investment in unlisted companies: Previously, the higher tax rate on unlisted equity discouraged investment in early-stage startups.
- Create a level playing field: The alignment brings parity between listed and unlisted investments, promoting a more balanced market.
A Dedicated Venture Capital Fund for Space
The budget also allocated Rs. 1,000 crore for a venture capital fund dedicated to the space economy. This initiative aims to:
- Support space startups: The fund will provide financial support to startups operating in the space sector.
- Promote innovation: By investing in space technology, the government aims to foster innovation and development in this emerging field.
Overall Impact
The measures announced in the Union Budget 2024-25 are expected to have a positive impact on India’s startup ecosystem. By removing regulatory hurdles and providing financial support, the government has demonstrated its commitment to nurturing innovation and entrepreneurship. These steps are likely to position India as a global startup hub.
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