India’s second largest startup hub to benefit from angel tax abolition

Pune: The abolition of angel tax for all classes of investors will be a big boost for the vibrant startup economy of the city that houses over 5,900 registered startups. Pune, which is also India’s second largest startup hub, could see a leg-up in private funding from non-institutional investors following the govt’s decision to abolish ngel tax. Experts said startups seeking funding, especially in pre-seed and seed funding rounds, would benefit the most.

“Funding has never been tough for companies with robust business models and vision. The abolition of angel tax will make it easier for the city’s larger early-stage and pre-revenue stage startups to get funding. It will remove the perceived fear of tax complications faced by non-institutional angel investors,” said Ajay Bhagwat, president of TiE Pune. Maneesh Bhandari, founder and CEO of Pune-headquartered Growthpal, said said abolition of the angel tax would not only benefit investors, but also startup founders. “I have been through the hassle of giving documentation and explaining the valuation for a number of portfolio companies over the past many years. However, while this was always projected as a challenge for the investors, it’s the founders who struggle the most as they had to provide documentation, deal with the IT department and chase all the investors to provide their documentation.” Anisha Patnaik, founder of LexStart Partners, a law firm that focuses on the early-stage ecosystem, said, “Beyond the potential constraints on cash flow, the angel tax created numerous challenges during fundraising efforts, which worsened last year when even foreign investments became subject to this tax. The differing regulatory requirements and imposition of angel tax on any discrepancy between the share price and FMV has resulted in several complications for startups.”Tech Entrepreneurs Association of Mumbai (TEAM) believes that startups will now be better positioned to scale their operations, invest in cutting-edge technologies, and create high-quality jobs. This decision also boosts investor confidence, encouraging more angel investors to support emerging ventures, it said. Revant Bhate, CEO at Mosaic Wellness said, “India needs high networth individuals (HNIs) to consider private investments as a strong asset class and abolishing angel tax alongside reducing the disparity in the long term capital gains (LTCG) rates for public and private investing will help bring more domestic capital into Indian startups.”Arjun Malhotra, partner at Good Capital, said, “As an investor, I’ve seen firsthand how this tax has been a thorn in the side of founders and investors alike, creating unnecessary friction in the funding process. It also allows us to more confidently co-invest with angel investors without the complications of angel tax.”
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