THE UNION BUDGET’S proposal to include non-resident investors in the scope of angel tax has led to widespread concern in venture capital (VC) and start-up circles. This provision, under Section 56(2)(viib) of the Income Tax Act, states that any premium paid above the fair market value of unlisted company shares by an investor— Indian or foreign—will be subject to taxation. Earlier, this tax was applicable only for investments made by domestic investors.
Start-ups—on whom the tax will be levied—fear this would hit their fundraising prospects as foreign investments are estimated to make up over 90 per cent of private capital invested in them. The additional tax liability on start-ups is expected to deter foreign investors from betting on Indian ventures.
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