The introduction of Angel Tax has posed significant challenges to the Indian startup ecosystem, particularly concerning tax liabilities on investments exceeding fair market value.
Angel Tax pertains to the tax imposed on unlisted companies (startups) for the excess consideration received from issuing shares to investors, particularly angel investors.
Originating from Broadway, "angel investors" were coined by William Wetzel to denote affluent benefactors supporting entrepreneurial ventures.
Introduced to combat black money and round-tripping, Angel Tax aims to regulate premium income on share issuance.
Recent amendments have expanded exemptions based on turnover and investor types, aiming to simplify compliance and attract foreign investments.
Recent changes include higher turnover exemptions and provisions for easier investor verification through e-verification methods.
The updated guidelines aim to facilitate easier funding for startups and mitigate past compliance burdens.
Challenges include administrative delays for startups to qualify for exemptions and potential investor reluctance due to tax uncertainties.
Exemptions cover startups registered with DPIIT and investments through specified funds like AIFs, aiming to foster investment climate.
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