Crypto Update: Major Boost for Startups in Budget 2024
Happy Wednesday! The finance minister, Nirmala Sitharaman, made a significant move by abolishing the decade-old angel tax, bringing widespread cheer among the startup community as part of Budget 2024. Here’s a summary of what’s new in the crypto world today:
Abolishing Angel Tax: A Game-Changer for Startup Ecosystem
- Finance minister Nirmala Sitharaman addressed a long-standing demand by proposing to eliminate the angel tax for all investor classes in the budget.
- The sunset clause for angel tax provisions under the income tax law will kick in on April 1, 2025, effectively eliminating the tax by then.
- The tax was initially introduced in 2012 to prevent money laundering and was imposed on funding raised by privately-held companies, including startups.
No More Angel Tax Hassles
- Industry associations and stakeholders have long been advocating for the removal of angel tax to reduce compliance burdens.
- The Department for Promotion of Industry and Internal Trade (DPIIT) also supported the abolishment of the angel tax.
- Startup investors and founders welcomed the move, highlighting the relief from unnecessary compliance and headaches.
LTCG Tax Reduction Benefits Venture Capitalists
- The budget proposal to lower the long-term capital gains (LTCG) tax on unlisted companies to 12.5% from 20% will significantly benefit investors exiting their positions from startups.
- Venture investors have long demanded equal treatment for gains from the sale of unlisted companies compared to listed securities.
- The reduction in capital gains tax, despite removing indexation benefits, presents a positive scenario for investors.
Boosting Post-Tax Returns
- Indexation benefits were not sufficient to offset the higher tax rate on unlisted shares, making the cut to 12.5% a major boost for investors.
- Secondary stake sales and buyouts dominated the startup space in the first half of 2024, showcasing the importance of tax reduction for exits.
- Early-stage venture funds like 3one4 Capital lauded the move, emphasizing the positive impact on post-tax returns.
Relief for Overseas Digital Companies
- Finance minister Nirmala Sitharaman announced the abolition of the 2% equalisation levy on digital companies without a physical presence in India, providing much-needed relief to overseas entities.
- The levy had been a point of contention between India and the US, affecting several companies operating without a brick-and-mortar presence in India.
- While the removal of the levy is a positive development, it could pose challenges for certain Indian companies offering online services.
A Awaited Respite
- The decision to abolish the equalisation levy aims to create a level playing field for Indian entities while fostering global tax harmonization.
- Concerns remain about the transition to OECD global taxation, with industry experts closely monitoring the developments in the coming months.
- Tax lawyers foresee challenges for travel booking platforms and other service providers due to the levy’s removal.
Hot Take: Strengthening India’s Growth Story
The measures announced in Budget 2024 are poised to fortify India’s renowned consumption-led growth narrative. The focus on employment generation, skilling, and infrastructure development is expected to drive a broad-based consumption uptick while keeping inflation in check.
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