Foreign investors such as Sequoia Capital, Softbank, Prosus, Tiger Global, Carlyle, KKR, and Blackstone will now be required to pay an ‘angel tax’ to Indian entrepreneurs. The decision may have a negative influence on funding as well as prompting more firms to go outside.
Indian businesses that raise cash from international investors such as Sequoia Capital, Softbank, Prosus, Tiger Global, Carlyle, KKR, and Blackstone will now have to pay a ‘angel tax,’ which may not only reduce investment but also encourage more startups to go outside.
The finance minister announced the Union Budget on Tuesday, saying that non-residents will now be subject to Section 56(2) VII B, sometimes known as the ‘angel tax,’ which was adopted in 2012 as an anti-abuse tool aimed at tax evasion.
Alternative investment funds registered with India’s market regulator, the Securities and Exchange Board of India (Sebi), are immune from angel tax.
This is going to be difficult for businesses that are already facing a worldwide funding crisis, given the majority of their cash has come from international investors.
According to Siddarth Pai, cofounder of venture capital company 3one4 Capital, this might force more firms to sell offshore since international investors may not want to deal with higher tax liabilities as a result of their involvement in the startup.
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