For the #23 episode of our AMA Show, we’ll be hosting the Founding Partner at 3one4 Capital – Siddarth Pai to talk about the much dreaded Angel Tax on Indian startups that has sparked a fierce debate between the startup industry and the government.
We’ll be discussing all the major aspects of Angel Tax with Siddharth as we explore its implications on startups, startup investments and also the possible solutions the startup community is proposing to the government in order to improve the situation for startups and Angel Investors in India.
Followed by an open Q&A where you can ask him anything about the Angel Tax in real time. If you want us to take up your question, you can also add them in the comments section below.
What is Angel Tax?
Angel tax is a term used to refer to the income tax payable on capital raised by unlisted (private) companies via issue of shares where the share price is seen in excess of the Fair Market Value (FMV) of the shares sold. The excess value is treated as income and taxed at 30.9%.
The tax was introduced back in 2012 by then finance minister Pranab Mukherjee by inserting a clause in Section 56 of the Income Tax Act 1961 through the Finance Act 2012, categorising this excess value over the FMV as the ‘Income From Other Source’. It was done primarily to cut short the spreading web of shell companies and money launderers.
It has come to be called angel tax since it largely impacts angel investments in startups.
Read more about Angel Tax in the following articles:
- As The Indian Govt Tweaks Angel Tax, The Ride Ahead For Startups And Investors Just Gets Bumpier
- On The Clipped Wings Of Angel Tax
- Govt Will Find Solution To Angel Tax Problems: Suresh Prabhu
- Does The Latest DIPP Notification Address The Angel Tax Issue?
- White Paper On Section 56(2)(viib) And Section 68 And Its Impact on Startups In India
About Siddarth Pai
Siddarth is a Founding Partner at 3one4 Capital – an early-stage venture capital firm based in Bangalore. He also works closely on regulatory matters concerning taxation, capital controls, and listing norms as an Expert Council Member at iSpirt – a startup-focused think tank.
As part of the 3one4 ecosystem, he has helped close 120+ funding rounds and investments into 35+ different funds across private equity and public markets.