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Sunday, May 19, 2024

Singapore, Mauritius, other countries excluded from angel tax relief; Know how this will affect startup funding in India

Several countries including Singapore, Mauritius, Cayman Islands, and Netherlands have been excluded from angel tax relief. This could worsen the startup funding winter in India.

Singapore, Mauritius, the Cayman Islands, and the Netherlands are among countries that account for the majority of the foreign direct investment (FDI) that is funneled into Indian startups.

According to venture capitalists, the exclusion of these countries  from a white list of nations that are relieved from angel tax provisions could make the currently occurring funding winter in the sector even worse.

Angel tax exemptions for investments originating from 21 nations were announced by the Central Board of Direct Taxes (CBDT) on May 24. The following countries are included in this category: Australia, Austria, Belgium, Canada, Czech Republic, Finland, France, Germany, Iceland, and Finland. Other countries, such as Israel, Italy, Japan, South Korea, New Zealand, Norway, Russia, Spain, Sweden, the United Kingdom, and the United States of America were also included on the same list.

However, regions such as Singapore, Mauritius, and the Cayman Islands, all three of which figure in the top seven sources of foreign direct investment (FDI) into India, are not exempt from the ambit of angel tax, which prompted concerns among investors.

The angel tax regime was initially established in 2012 as a preventative step against the exploitation of money laundering. It required that a startup’s fundraise could be subject to taxation anytime the funding round occurred at a valuation that was higher than the fair worth of the shares – as established by a merchant banker. This tax was levied on the investor.


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