Angel tax ghost back to haunt startups

THE FINANCE BILL, 2023, has sought to include foreign and non-resident Indians under the ambit of the contentious angel tax provision applicable to early-stage startups. The fine print of the Bill now requires non-resident Indians and foreign investors in private companies (including startups) to pay tax on any or all shares that are issued on premium pricing. This is expected to increase the tax burden on foreign angel and seed investors, according to investors and experts.

- SALMAN SH

The move could dent startup investments in the country by foreign investors such as SoftBank, Tiger Global, Alpha Wave and Sequoia.

Section 56 of the income tax law includes a special provision which states that a privately held company issuing shares at a higher price than the audited fair market value is subject to a tax which is chargeable to the amount received in excess of fair market value.

The Section 56 provision of the I-T Act had earlier caused uproar and much dismay among startups citing that this amounts to 'over-taxation of angel funds' raised by a startup.