Union Budget 2024: Major Boost for Startups with Angel Tax Abolition

In a recent move set to reshape the startup landscape, Finance Minister Nirmala Sitharaman, during her Union Budget 2024-25 presentation, announced the abolition of angel tax for all investor classes. This remarkable decision is expected to bring a breath of fresh air to the startup ecosystem and foster a more conducive environment for investment and growth.

Angel Tax Aboilation: What Does It Mean?

The long-anticipated removal of angel tax is a significant win for startups and investors alike. What does this mean for the investor class? How will this move impact the dynamics of startup funding in India? This reform is poised to remove a major hurdle for investors, potentially unlocking new opportunities for capital infusion and growth in the startup sector.

Earlier speculations about the removal of angel tax were confirmed when DPIIT Secretary Rajesh Kumar Singh endorsed the proposal days before the budget announcement. The call for abolition came as part of a broader push to support the startup ecosystem, which has faced challenges in recent times, including a sharp decline in funding.

Budget for Startups: Key Proposals for Startups

In addition to the angel tax abolition, the Finance Minister extended the tax holiday for eligible startups by a year. Previously set to expire on March 31, 2024, the deadline for incorporation to avail of the tax benefits under the Startup India scheme has been extended to March 31, 2025. This move aims to provide more startups with the chance to benefit from tax exemptions.

Current State of the Startup Ecosystem

Despite the government's efforts to bolster the startup ecosystem, recent trends show a decline in funding. In 2023, funding for Indian startups plummeted to $8.8 billion from $25 billion in 2022. The number of unicorns also saw a significant drop, with only two new unicorns emerging in 2023 compared to 23 in 2022.

The Union Budget 2023-24 had previously introduced several initiatives, including an extension of the incorporation date for tax benefits and an increase in the benefit period for carrying forward losses. These measures, along with the new angel tax abolition, demonstrate the government's commitment to nurturing the startup ecosystem.

India's Growing Startup Ecosystem

India's startup ecosystem remains one of the largest globally, ranking third in the world and excelling in innovation quality among middle-income countries. Initiatives such as the Startup India scheme, Fund of Funds for Startups (FFS), Startup India Seed Fund Scheme (SISFS), and Credit Guarantee Scheme for Startups (CGSS) continue to support startups at various stages of their journey.

With this latest budget announcement, the Indian startup ecosystem is set for a transformative phase. The removal of angel tax is expected to enhance investor confidence and drive a renewed focus on innovation and growth. Stay tuned as we delve deeper into how this significant change will unfold and its impact on the future of startups in India.