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Published: May 26, 2023
Updated: May 26, 2023

Angel Tax Exemption for Start-up Investments: CBDT Notifies 21 Nations, Excluding Key Players

India's Finance Ministry has taken a significant step by notifying a list of twenty-one nations whose investments in Indian start-ups will be exempted from Angel Tax. This move aims to promote foreign investment in the country's start-up ecosystem. However, it is worth noting that certain countries like Singapore, Netherlands, and Mauritius are excluded from the list. This article explores the implications of this notification and highlights the excluded key players in the start-up investment landscape.

Angel Tax Exemption: Opening Doors for Foreign Investments

In a bid to encourage foreign investments in Indian start-ups, the Finance Ministry has introduced a notification exempting investments from twenty-one nations from Angel Tax. This exemption is significant as it creates a favourable environment for non-resident investors to support the growth of Indian start-ups.

The Included Nations: United States, United Kingdom, and More

The list of twenty-one nations included in the notification comprises prominent economies such as the United States, United Kingdom, and France. These nations hold strategic importance in the global start-up ecosystem, and their exemption from Angel Tax is expected to boost investments in Indian start-ups.

Excluded Players: Singapore, Netherlands, and Mauritius

While several nations enjoy the benefit of exemption from Angel Tax, some notable players are missing from the list. Countries like Singapore, Netherlands, and Mauritius, which have been significant sources of foreign investment in Indian start-ups, are excluded from the notification. This exclusion may impact the investment landscape and necessitate a reevaluation of investment strategies.

Exempt Entities and Clarifications

The notification specifies that certain entities are exempt from Angel Tax, including those registered with Sebi as Category-I FPI, Endowment Funds, Pension Funds, and broad- based pooled investment vehicles from the specified nations. This clarity offers guidance on eligible entities and their ability to invest in Indian start-ups without attracting Angel Tax.

The Way Forward: Valuation Guidelines and Impact on Start-up Ecosystem

Moving forward, the CBDT is expected to release valuation guidelines for non-resident investments in unrecognised start-ups. These guidelines will play a crucial role in determining the income tax levied on such investments. The exemption from Angel Tax for investments from the listed nations has the potential to invigorate the Indian start-up ecosystem, attract foreign capital, and foster innovation and economic growth.

The Finance Ministry's notification exempting investments from twenty-one nations from Angel Tax marks a significant step in promoting foreign investment in Indian start-ups. While it opens doors for investors from countries like the United States and the United Kingdom, the exclusion of key players like Singapore, Netherlands, and Mauritius raises questions about the impact on the investment landscape. As the CBDT introduces valuation guidelines for non-resident investments, the start-up ecosystem looks poised for growth, innovation, and increased collaboration with global partners.