India Says Goodbye to Angel Tax: What This Means for Startups

What Was Angel Tax and Why Was It Problematic?

India Says Goodbye to Angel Tax: What This Means for Startups: Angel tax, introduced in 2012 under Section 56(2)(viib) of the Income Tax Act, taxed the difference between the fair market value (FMV) of shares issued by startups and the amount received from investors. This targeted early-stage funding and was intended to prevent money laundering. However, it:

Discouraged angel investment due to tax on unrealised gains
Created compliance burden and uncertainty
Led to startups relocating abroad to tax-friendly jurisdictions (like Singapore, UAE)

Abolishing Angel Tax: What Changed in FY25?

The Union Budget 2024–25 completely abolished angel tax, signalling a major policy shift toward startup ease of doing business. This reform:

Encourages reverse flipping—startups registered overseas are relocating back to India
Promotes faster DPIIT registration, compliance, and funding access
Boosts investor confidence and startup valuation transparency

India’s Startup Ecosystem: From 2016 to 2024

Since the Startup India initiative (2016), India has seen rapid growth:

Registered startups (2024): Over 1.57 lakh
Funding raised (2024): $155 billion
Jobs created: 1.7 million+
Global rank: Top 3 (after the U.S. and China)
Rise in Tier-2/Tier-3 city participation in entrepreneurship

This reflects India’s growing role as a global innovation hub with inclusive, digitally-enabled access.

Static GK Snapshot for Exams

India Says Goodbye to Angel Tax: What This Means for Startups:

Topic	Fact
Angel Tax Introduced	2012, Section 56(2)(viib)
Abolished In	Union Budget FY25 (2024–25)
Startup India Launch Year	2016
Startups Registered (2024)	Over 1,57,000
Fund of Funds Scheme (FFS)	₹10,000 crore via SEBI-registered AIFs
Reverse Flipping	Startups shifting back to India from overseas
Startup Jobs Created	Over 1.7 million
Startup Funding (2024)	$155 billion

Manufacturing Startups Get a Push

DPIIT is bridging product-based startups and large manufacturers, enabling:

Startup suppliers to plug into national supply chains
Tech innovators (IoT, green tech) to become preferred vendors
Greater integration into Make in India and industrial digitisation

This will boost B2B revenue and help shift from services to high-value manufacturing startups.

Global Investor Interest and Startup Mahakumbh

With policies now favouring Indian entrepreneurs, foreign investors—from Saudi Arabia to Singapore—are eyeing India’s startup sector. At forums like Startup Mahakumbh, investors are actively seeking Indian tech, agri, fintech, and health startups.

The government is exploring foreign direct entry routes for sovereign and pension funds into startups, expanding funding opportunities beyond traditional VCs.

DPIIT and AIFs: Building the Startup Capital Stack

To celebrate 9 years of Startup India, DPIIT is convening a meeting of 75 Alternate Investment Funds (AIFs) to:

Mobilise early-stage capital
Support rural and Tier-2/Tier-3 startups
Use the Fund of Funds Scheme (FFS) to amplify capital access through SEBI-registered channels

This ensures inclusive entrepreneurship, spreading funding to beyond metro cities.

Final Thoughts: A New Era for Indian Startups

The abolition of angel tax marks more than a fiscal reform—it’s a vote of confidence in Indian entrepreneurship and innovation. Startups now enjoy:

Clearer tax policies
Stronger funding support
Global investor interest
Ease of compliance and registration

India has abolished the angel tax, signaling a new era for its startup ecosystem.
The abolition of angel tax has led to a surge in “reverse flipping”, with startups returning to India.
Angel tax was introduced in 2012 to curb money laundering but was detrimental to startups.
The tax was levied on the difference between the fair market value and the price of shares issued to investors.
Angel tax led to unnecessary bureaucracy and harassment, causing many startups to relocate abroad.
The Indian government’s removal of angel tax is aimed at fostering a startup-friendly environment.
The Department for Promotion of Industry and Internal Trade (DPIIT) is fast-tracking company registrations to attract startups back.
India now ranks among the top three startup ecosystems globally, alongside the U.S. and China.
Startup India, launched in 2016, has helped increase funding from $8 billion in 2016 to $155 billion in 2024.
Over 7 million jobs have been created in the Indian startup sector since 2016.
Tier-2 and Tier-3 cities are also seeing a boom in startups, driven by better digital access and government support.
International interest in Indian startups is growing, with countries like Saudi Arabia seeking partnerships.
Startup Mahakumbh has seen increased participation from foreign delegations and investors.
The government is facilitating foreign sovereign funds to invest directly in Indian startups.
Manufacturing collaborations between startups and large companies are boosting India’s manufacturing sector.
The DPIIT is promoting public-private partnerships to support funding and growth of startups in Tier-2 and Tier-3 cities.
Capital mobilization strategies and early-stage funding are critical for strengthening the startup ecosystem.
The Fund of Funds Scheme (FFS) remains central to providing capital to SEBI-registered AIFs, which then invest in startups.
DPIIT’s efforts are reducing bureaucracy, promoting innovation, and enhancing global collaborations.
The removal of angel tax is a step toward making India a global powerhouse for entrepreneurial innovation.