Central Board of Direct Taxes (CBDT) has notified certain certain classes of persons which are exempt from the ‘angel tax’ provisions under Income-tax Laws, vide Notification 29/2023.
CBDT Notification 29/2023 on Angel Tax Exemption for Certain Persons/Countries
The CBDT notification on the captioned subject enlists three categories of persons whose investments in closely held companies (CHCs) shall not be covered under the ambit of angel tax provisions:
i) Government and Government-related investors such as central banks, sovereign wealth funds, international or multilateral organizations or agencies/entities controlled by the Government or where direct or indirect ownership of the Government is 75% or more,
ii) Banks or regulated entities involved in insurance business, and
iii) Non-resident investors from notified 21 countries. The list of 21 countries includes Australia, Austria, Belgium, Canada, Czech Republic, Denmark, Finland, France, Germany, Iceland, Israel, Italy, Japan, Korea, New Zealand, Norway, Russia, Spain, Sweden, United Kingdom and the United States.
CBDT Income Tax Notification 29/2023 dated 24/05/2023: Persons Exempted from Angel Tax Provisions
Impact of the Angel Tax Exemption Notification
The notification on angel tax exemption for specified classes of persons is expected to encourage foreign portfolio investors (FPIs) from the 21 countries to invest in startups in India. This move aims to attract foreign investment from countries with strong regulatory frameworks. However, the notification restricts angel tax exemption for investment from countries such as Singapore, Netherlands and Mauritius.
In conclusion, the CBDT Notification 29/2023 exempts certain classes of persons and persons of specified 21 countires from the provisions related to angel tax under the Income-tax Laws.