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Angel Tax : Exemption

Angel Tax : Exemption

The Central Board of Direct Taxes (CBDT) has announced a proposal to exempt certain categories of investors from the levy of angel tax.

  • The move aims to encourage investments in start-ups and ease the burden of taxation.
  • Additionally, the CBDT has introduced five new valuation methods for resident investors, expanding the options beyond the Discounted Cash Flow (DCF) and Net Asset Value (NAV) methods.
  • The CBDT has outlined several categories of investors that will be exempted from the angel tax.
  • These include:
    • Government and government-related investors, such as central banks, sovereign wealth funds, and international or multilateral organisations, or where ownership of the government is 75% or more.
    • Banks or entities involved in the insurance business.
    • Entities registered with SEBI as Category I Foreign Portfolio Investors (FPI), endowment funds, and pension funds.
    • Broad-based pooled investment vehicles or funds where the number of investors is more than 50 and such fund is not a hedge fund too are exempt.
    • Hedge funds pool money from investors and invest in securities or other types of investments with the goal of getting positive returns.

Angel Tax:

  • The provision known as the ‘angel tax’ was initially introduced in 2012 to discourage the generation and utilisation of unaccounted money through investments in closely held companies.
  • It is the tax that must be paid on the funds raised by unlisted companies through the issuance of shares in off-market transactions, if they exceed the fair market value of the company.
  • Fair market value (FMV) is the price of an asset when buyer and seller have reasonable knowledge of it and are willing to trade without pressure