Angel tax abolition to help facilitate genuine investments, says finance ministry

The abolition of angel tax will help facilitate genuine investments and there are several deterrents in other laws to address any money laundering concerns, the finance ministry said on Tuesday.
 
To bolster the Indian start-up eco-system, boost the entrepreneurial spirit and support innovation, the finance minister in the Union Budget 2024-25 has proposed to abolish the so-called angel tax for all classes of investors.
 
“This issue was being raised. Although it was introduced during the UPA government in 2012, two years passed and when we came in, we tried keeping the tax and we gave carveouts for startups and parity for non resident Indians. Today we have announced that we will remove it,” Sitharaman said in a post Budget press conference.

Revenue secretary Sanjay Malhotra said that the issue of money laundering was being tackled through a tax measure. “There are other provisions in the income tax to find out the source of these funds. There is also PMLA to look into money being laundered or paid as a bribe or used for purposes such as terrorism,” he said, adding that the Bharatiya Nyaya Sanhita can also take care of these issues. “For genuine money for investment, this deterrent provision no longer exists,” he said.
 
Finance secretary TV Somanathan also pointed out that there are certain provisions in the Companies Act that can be invoked for undervaluation of shares. “There are other remedies. The balance here is preventing money laundering but accidently also preventing investment. We are trying to get that balance right,” he said.
 
Meanwhile, on the capital gains rejig, the finance minister said the intention was to simplify the approach for taxation, in particular for capital gains. “The average taxation has come down to 12.5%,” she underlined, adding that it was worked out for different asset classes.  This will also encourage investment in the markets.
 
Somanathan also said the capital gains tax regime has been made "very, very simple" in the Budget. "Equities are at 20% and everything else is it at the applicable rate for the short term. Yes, short-term has gone up and yes, long-term has been rationalised. It has not gone up," he said.

He also said that the 12.5% capital gains tax provided without indexation is better than the 20% tax rate levied earlier with indexation benefits.
 
The Budget has announced a move towards simplifying the capital gains tax regime.  
 
Revenue secretary said there are primarily people paying capital gains on listed securities. “Analysis for FY23 revealed that 88% of tax is coming from people with income of over Rs 15 lakh. 61% of the income coming from people with income of over Rs 1 crore. The standard rate is about 13% and for some it can go upto 39%. This very small marginal increase will impact those who have income of Rs 15 lakh or more per year from capital gains,” he said.
 
Responding to a question on new areas of tax mobilisation, the finance minister also underlined that India’s tax net will have to be widened on both direct and indirect tax fronts. “PSU dividends have improved as their valuation has gone up and their performance has increased substantially,” she said, adding that there is a lot of non tax revenue mobilisation apart from tax revenue.
 
Asset monetisation is the third area of revenue mobilisation, she further noted and said the government is also looking at generating resources from newer areas. “So the revenue foregone will now be made up for,” she said.
 
According to the Budget, the various tax proposals will lead to revenue foregone of about Rs 37,000 crore –  Rs29,000 crore in direct taxes and Rs 8,000 crore in indirect taxes. However, about Rs 30,000 crore rupees will be additionally mobilised. Hence, the total revenue forgone is about Rs 7,000 crore annually.
 
The revenue secretary said proposals such as the increase in the securities transaction tax on futures and options and the buyback tax on the hands of the recipient will bring in more tax with the latter expected to yield Rs 4,00 crore. Another Rs 15,000 crore will come from capital gains tax. The government will lose revenue due to the reduction in duties, primarily on gold as well as from the rejig in the personal income tax rates and the higher standard deduction in the new income tax regime.