CBDT notifies 21 nations from where investment in startups will be exempt from angel tax


NEW DELHI: The Ministry of Finance has notified 21 countries, including the US, Great Britain and Francefrom where no angel tax applies to non-resident investments in unlisted Indian start-ups.
However, the list excludes investments from countries such as Singapore, the Netherlands and others Mauritius.
The government had budgeted foreign investment in unlisted, closely held companies, excluding DPIIT-approved startups, into the angel tax net.
As a result, the start-up and venture capital industry applied for an exemption for certain investor groups abroad.
The Central Direct Tax Office (CBDT) on May 24 notified classes of investors that would not be subject to the angel tax provision.
Excluded entities include those registered with Sebi as Category I FPIs, endowment funds, pension fund and broad-based pooled investment vehicles based in 21 designated countries including the US, UK, Australia, Germany and Spain, according to the announcement.
The other countries mentioned in the notification are Austria, Canada, Czech Republic, Belgium, Denmark, Finland, Israel, Italy, Iceland, Japan, Korea, Russia, Norway, New Zealand and Sweden.
The CBDT notification will come into effect on April 1st.
Rakesh Nangia, Chairman of Nangia Andersen India, said that by specifically mentioning this list of countries, the government intends to attract more foreign investment (FDI) to India from countries with robust regulatory frameworks.
“Surprisingly, countries like Singapore, Ireland, the Netherlands, Mauritius, etc., from which the bulk of inbound FDI to India are channeled, are not mentioned in this release,” Nangia said.
Stakeholders may still have to limit themselves to a formal communication on the assessment guidelines, as it is proposed to publish the relevant rules after a consultation process with stakeholders, he added.
The CBDT is expected to issue valuation guidelines for the valuation of non-resident investments in non-recognized start-ups for income tax collection purposes.
Under the existing norms, only investments by domestic investors or residents in related companies were taxed above market value. This was commonly referred to as the Angel Tax.
The Finance Act 2023 provides that such investments go beyond that FMV are taxed regardless of whether the investor is resident or non-resident.
Following the proposed changes to the Finance Act, concerns were raised about the method used to calculate fair market value under two separate acts.

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