While presenting the Union Budget 2024-25, Finance Minister Nirmala Sitharaman declared that the angel tax for all investor classes will be repealed. This decision comes as a huge relief to the Indian startup community, which has been experiencing a financing drought for the last year.

"First of all, to bolster the Indian start-up eco-system, boost the entrepreneurial spirit and support innovation, I propose to abolish the so-called angel tax for all classes of investors," according to Sitharaman.

The Department for Promotion of Industry and Internal Trade (DPIIT) secretary, Rajesh Kumar Singh, confirmed the department's request for the repeal of the angel tax days before the budget announcement.

In addition to eliminating the angel tax, the Finance Minister expanded the definition of an "eligible startup" under the Startup India initiative to encompass firms formed between April 1, 2016, and March 31, 2025. This expansion allows more entrepreneurs to take advantage of the tax break provided by the plan.

Currently, the DPIIT acknowledges 1,17,000 registered firms under the Startup India program. To be eligible for incentives, a startup's revenue must be less than Rs 100 crore in any of the prior fiscal years.

How this move is 'excellent news' for the Indian startup ecosystem

The budget announcement comes at a critical moment for Indian companies, who have seen financing drop dramatically to $8.8 billion in 2023 from $25 billion in 2022. Only two new unicorns appeared in 2023, compared to 23 in 2022 and 39 in 2021.

Previous budget attempts for startups included extending the incorporation date for income tax purposes and expanding the advantage of carrying forward losses to ten years. The government has taken several steps to strengthen India's startup ecosystem, which is currently the world's third biggest.

So far, the government has made a number of efforts to foster businesses in the country. In 2016, the government announced the Startup India program with the goal of creating a robust environment for innovation and encouraging private investment in companies.

Under this effort, numerous initiatives like as the Fund of Funds for companies (FFS) scheme, the Startup India Seed Fund Scheme (SISFS), and the Credit Guarantee Scheme for Startups (CGSS) have provided money to domestic companies at various phases of their business cycles.