The finance ministry has said that angel tax will not apply to non-resident investments into privately held Indian businesses from 21 nations, including the US, the UK, Germany, and France.
However, the list does not include investment from important nations like Singapore, the Netherlands, or Mauritius. It is noteworthy that a number of well-known jurisdictions, including Singapore, Mauritius, Cayman, the Netherlands, Cyprus, and the United Arab Emirates, have not been included in the list of notified nations; as a result, investments made using funds registered in these nations will not be exempt.
For FDI inflows into India in 2022, the top five jurisdictions included Singapore, Mauritius, the UAE, and the Netherlands. The value of this notification for Indian entrepreneurs will be limited by the decision not to exempt funding from these nations, according to Vaibhav Gupta, partner at Dhruva Advisors.
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Current Laws on Angel Tax:
The government announced a number of modifications to the tax imposed on angel investors in unlisted firms late last week, including an expansion of the range of valuation procedures.
Only investments made by domestic investors or residents in closely held businesses were subject to additional taxes above fair market value under the laws in place at the time. A tax known as an angel tax was used to describe this. According to the Finance Act of 2023, taxes will be applied to such investments above the FMV whether the investor is a resident or a non-resident.
The government included foreign investment under the angel tax’s extended scope in the budget. Startups have been requesting an exemption for specific groups of foreign investors as they already struggle to navigate the current funding winter. Experts had previously stated that businesses receiving angel tax warnings must pay 25% of the money raised as tax and a penalty of twice that amount for breaking the terms of the exemption.
On May 24, the Central Board of Direct Taxes (CBDT) informed various investor classes that they would not be subject to the angel tax provision. Excluded entities include endowment funds, pension funds, and broadly based pooled investment vehicles that are residents of 21 designated countries, including the US, UK, Australia, Germany, and Spain. These firms are registered with SEBI as category-I FPIs.
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