India’s 2024 Budget Abolished Angel Tax: Major Boost for Startups and Web3

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The concept of angel tax has been a hot topic in the investment community, especially for startups and emerging sectors like Web3. In a recent 2024-2025 budget announcement, the Indian government abolished angel tax for all investor classes. 

This reform, announced by India’s Finance Minister Nirmala Sitharaman, is set to boost startup funding from both domestic and international investors.

What is Angel Tax?

Angel tax refers to the tax levied on the capital raised by unlisted companies through the issuance of shares, where the share price exceeds the fair market value of the shares. 

Originally introduced in 2012 by the Indian government by Shri Pranab Mukherjee, the tax aimed to curb money laundering practices under the form of investments. However, it has been a point of disagreement, particularly for startups relying on angel investors to fuel their growth.

In a recent 2024-25 Union Budget India’s FM Nirmala Sitharaman announced that the Angel Tax’ is to be abolished and will no longer be applicable. This means that from this date, all startups raising capital at a premium will be exempt from the angel tax. 

Many angel investors have praised this decision. Vikram Chopra, CEO of Cars24, remarked, “The repeal of the angel tax is like the turbo boost we needed. No more unfair tax hurdles. It’s time to unleash a herd of unicorns!”

Effects of Angel Tax on Investors

Impact on Startups: Angel tax poses challenges for startups that rely on early-stage investments to grow. By taxing the excess premium, this policy can discourage investors, reducing the funds available to startups.

Investor Sentiment: The tax can lower enthusiasm among angel investors, who are vital in supporting innovative ideas. This can slow the overall growth of the startup ecosystem.

Administrative Burden: Complying with angel tax regulations requires complex valuations and documentation, adding extra administrative burdens on startups that already have limited resources.

Positive Impact On Web3 Sectors

The recent budget announcement has opened multiple opportunities for investors to invest in various sections, especially in Web3 sectors like blockchain and DeFi without worrying about angle taxation. Perhaps, reducing the tax burden could create a more favorable environment for startups, encouraging investor support.

Additionally, a startup-friendly tax policy would also bring local investment in Web3, keeping Indian companies competitive globally. Meanwhile, ease on angel tax rules could also attract foreign investors, boosting the growing tech scene.