HYDERABAD: Startup founders and employees in Hyderabad welcomed the abolition of angel tax by the Centre in the Union Budget on Tuesday, terming the decision a game changer.
Speaking to TNIE at T-Hub here, Nandita Sethi, Director of Innovation and Incubation at Antrep Ventures, said the decision will spur innovation. “We hope this will give an incentive for investors to put money in startups as they get better returns,” she added.
A 30% angel tax was being levied on investments received by startups from external investors, on the amount going beyond the fair market value of a company. If a firm’s fair value amounted to Rs 2 crore and it raised Rs 2.5 crore from investors, then the additional Rs 50 lakh would be taxable.
Startup founders and employees had contended that calculating the fair market value of a startup was impractical. Piyush Raj Akhouri, the co-founder of HirePlusPlus Tech and Bridgentech, called the scrapping of angel tax a win-win for all stakeholders. “It was making it difficult for the investors to first invest and then how to take care of their losses if any,” he told TNIE.
Noting that the tax was an additional burden as startups are high-risk businesses with low funds, Satyanand K, engineering manager at Kis.ai, said that the move will let local investors too happily put in their money as a result of which innovation will boom.
Meanwhile, Nandita’s colleague KS Menon expressed scepticism: “Suppose 5% is removed from Rs 100 crore, earlier you would have got Rs 95 crore but now you will get the entire amount. But will it spur the growth of startups from Rs 100 crore to Rs 150 crore? I believe that may not happen because fundamental decisions are taken on the viability. If there are more startups with good ideas, they will achieve Rs 150 crore. It has some benefits, but not that much.”
