Budget 2018: New measures to support angel and VC investors in India: FM

The government plans to set up new measures to strengthen the environment for the growth of venture capital funds and angel investors who have been investing across the startup sector in India,  said Finance Minister  Arun Jaitley as he presented the Union Budget 2017-2018 on Thursday.

"Venture capital funds and angel investors need an innovative, special development and regulatory regime for their growth. We have taken a number of policy decisions including launching of the startup in India program building a robust investment ... taxation regime. We will take additional measures to strengthen the environment for their growth,"  Jaitley said in his speech.

The announcement emphasizes the government's focus on the promotion of startups ecosystem in the country.

There wasn't an immediate clarity on the measures proposed by the government.

However the industry has been expecting a relaxation  in the tax levied on angel investors who put in their money across early stage startups.

Angel tax clause was introduced in the Income Tax Act in the 2012 budget. Till now the tax rate stood at a whopping 30 percent, which according to Nasscom also resulted in a 53 percent drop in angel funding during the first half of 2017.

Since angels invest across startups at a very early stage of their business cycle it is considered a high risk investment. Angels have been thus calling for a relaxation in this tax policy.

Besides this, they have been demanding clarity over the issue of fair value pricing.

According to the Indian Income Tax Act, any consideration, if a company receives from a resident in excess of a "fair value", then such shares will be taxed as 'income from other sources'.

But the whole argument is that there are arbitrary ways of calculating the fair value of a company. It depends on a lot of factors and different entities can calculate it in different ways resulting into multiple valuations of a company.

Further, many startups are also reported to be facing "unfair" scrutiny from Income Tax department since last year over valuations at which capital was raised from angel investors.