In a significant move, the Commerce Ministry has recommended abolishing the contentious “angel tax,” signaling potential relief for startups in the upcoming budget. The current regime imposes a 30% tax on investments made by external investors in startups.

The recommendation, driven by the Piyush Goyal-led ministry, awaits the final decision from the Finance Ministry, as confirmed by Rajesh Kumar Singh, Secretary of DPIIT, in a media briefing on Thursday.

The angel tax has long been criticized by many in the Indian startup ecosystem as a draconian measure stifling entrepreneurship and innovation. Despite ongoing concerns raised by angel investors, venture capitalists, and activists over the past decade, the government maintained the tax as a means to curb money laundering.

Introduced in 2012 under the UPA-led government, the angel tax aimed to address unaccounted money through capital raised from resident investors in closely held companies, charging a 30% tax on such investments.

“The recommendation to remove the angel tax is a welcome move. We, the angel investor community, are hopeful for complete relief from it. Our hopes now rest with the Finance Ministry,” said a prolific angel investor with over 60 startup investments.

Last September, a government notification exempted DPIIT-registered startups from the 30% taxation, claiming to provide relief to over 80,000 startups. However, many DPIIT-approved startups and their angel investors have received Income Tax notices over fair market valuation and investor details in the past six months.

The DPIIT’s recommendation is a positive sign for the ecosystem. Past court and tribunal rulings have also deemed the angel tax unnecessary. The final decision now lies with the Finance Ministry, and the startup and investor communities eagerly await the outcome.