<article>The Indian government has decided to do away with a tax that was imposed on angel investments in 2012, in a bid to boost startup activity in the country.</article>

The Indian government has decided to do away with a tax that was imposed on angel investments in 2012, in a bid to boost startup activity in the country.
The step, notified on Saturday, means that angel investors, family offices and funds operating out of India, and not registered as venture capital firms, will not face tax even if the funding exceeds the face value.
Under current rules, formulated in 2012 by the UPA government, funds invested in return for equity in unlisted companies are taxed for the portion that is in excess of the fair market value of those shares.
Such inflow is classified as &#8216;income from other sources&#8217; under Section 56 of the federal Income-Tax Act. The tax rate is usually above 30 per cent, equivalent to the rate charged from big corporations. Venture capital investors have said that this tax is unfair because it equates small startups with big companies. And it acts as a deterrent to angel investors based out of India.
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Investors that DEALSTREETASIA spoke to were relieved at the government&#8217;s move, but expressed concerns about a new set of conditions that might make life difficult for startups.
For instance, only firms that are defined as startups under new government rules will be eligible to avail tax benefits. That means startups will need to get a fresh certification from the government to attest that the company is less than five years old, has turnover of up to Rs 25 crore, is working towards innovation and commercialization of new products or services, and driven by technology or intellectual property.
This process of certification will lead to more red tape and bureaucratic hurdles for startups, which were hoping for a more streamlined process after Prime Minister Narendra Modi &#8216;<a style="color: #000080;" href="http://www.dealstreetasia.com/?s=Startup+India" target="_blank">Startup India</a>&#8216; event that promised to make it easier for entrepreneurs to start new companies and attract investments.
Despite the &#8216;angel tax&#8217;, such investors have continued to be active in India&#8217;s fast-growing startup ecosystem because of the huge opportunities this market presents. India is often referred to as the last unconquered frontier after China, and investors were hoping that the tax would be abolished without any riders.
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The Indian government has decided to do away with angel tax that was imposed on investments in 2012, in a bid to boost startup activity in the country. 

India does away with derided 'angel tax' but benefits are unclear

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India does away with derided 'angel tax' but benefits are unclear

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