Policy Next Karnataka Summit | Give us some time and we will solve angel tax issue, says Rajeev Chandrasekhar

Union MoS for Electronics and IT Rajeev Chandrasekhar delivering the keynote address at Policy Next Karnataka event in Bengaluru on May 5.

The government needs some time to solve the angel tax issue even as there is pushback on the matter from revenue and taxation departments, Union Minister for Electronics and Information Technology Rajeev Chandrasekhar said on May 5.

"There is some pushback from the revenue and income tax departments in terms of misuse and so forth. But, in principle, we are fairly clear that we do not want any policy to be a road bump in the growth trajectory of our startups. This is an article of faith for us," the minister said at Moneycontrol's PolicyNext conference on The Big Karnataka Resurgence as the state readies to go into assembly polls later this month.

"You will see this in all of the rule-making that we will do. On this particular issue (of angel tax), there has been a lot of debate. Give us some time and we will solve it," he added.

If the funding winter was not enough of a problem, the government threw another curveball at startups with its Union Budget earlier this year. This is because an exemption for money raised from foreign investors under the angel tax regime has been done away with in the Finance Bill, 2023.

However, the exemption for investments made by SEBI-registered alternative investment funds still continues.

According to experts, the new tax provision could severely dent startup investments in the country by foreign investors such as SoftBank, Tiger Global, Alpha Wave and Sequoia.

Industry bodies of startups and venture capital investors have suggested a raft of measures to the central government so that its move to include investments from foreign investors under the ambit of angel tax doesn’t hurt start-up funding.

The measures suggested include excluding investments from foreign companies, PE/VC funds, sovereign wealth funds, endowment funds and hedge funds recognised by the International Organization of Securities Commissions (IOSCO) from the angel tax regime, apart from financial institutions like banks, insurance companies, asset management companies, portfolio managers, wealth advisors and investment advisors.