In a move that will widen the pool of available capital for startups and expedite closure of funding rounds, angel tax for all classes of investors has been axed. “This will make it significantly easier for us to complete transactions faster and streamline the investment process. Previously, the requirement for IT officers to understand and assess valuations led to unnecessary conflicts and delays.Valuation assessments were never meant to fall within the purview of IT officers. This change eliminates those complications,” said Anirudh A Damani, managing partner, Artha Venture Fund.

Investors, who had earlier been reluctant to fund companies amid fears that a big part of their funding would get taxed, will now be more forthcoming in betting on early-stage startups, said Arpit Chug, CFO at Razorpay. The number of active domestic investors is expected to jump 10-20% as a result of this policy change, said Kulmani Rana, founder of startup accelerator Fibonnaci Global. An angel tax at 30.6% was levied when an unlisted company issued shares at a price higher than its fair market value.
Startup valuations are largely based on the company’s future potential. “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,” said Anisha Patnaik, angel investor and founder, LexStart Partners.