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The United States, the United Kingdom, and France are among the 21 countries that the Finance Ministry has informed that non-resident investments in unlisted Indian businesses will not be subject to the angel tax. However, investments from Singapore, the Netherlands, and Mauritius are not included in the list.
With the exception of startups recognised by DPIIT, the government included foreign investment in unlisted closely held businesses under the Angel Tax net in the budget. The startup and venture capital sectors then requested an exemption for particular categories of foreign investors. The startup and venture capital sectors then requested an exemption for particular categories of foreign investors.
The Central Board of Direct Taxes (CBDT) declared on May 24 that a few categories of investors would not be subject to the Angel Tax provision. The announcement lists 21 countries, including the United States, United Kingdom, Australia, Germany, and Spain, as excluded entities. These include broad-based pooled investment vehicles, endowment funds, pension funds, and broad-based FPIs that are registered with Sebi as Category-I FPIs.
Other nations mentioned in the notification include Austria, Canada, the Czech Republic, Belgium, Denmark, Finland, Israel, Italy, Iceland, Japan, Korea, Russia, Norway, New Zealand, and Sweden. On April 1, the CBDT notification will go into effect.
According to Rakesh Nangia, Chairman of Nangia Andersen India, the government hopes to draw more foreign investment (FDI) into India from nations with robust regulatory frameworks by publicly disclosing this list of nations. Nangia remarked that it was surprising that the notification did not specifically mention nations like Singapore, Ireland, the Netherlands, Mauritius, and others from which the majority of FDI flows into India.
Considering that the rules on the matter are expected to be released after a stakeholder engagement process, he continued, stakeholders might still have to wait for a formal notification on the valuation criteria. For income tax purposes, the CBDT is likely to publish valuation guidelines for non-resident investments in unregistered startups.
Previously, only domestic investors or residents’ investments in closely held businesses were subject to taxes above fair market value. Typically, this was referred to as an angel tax. Whether the investor is a resident or a non-resident, the Finance Act of 2023 states that such investments above the FMV will be taxed.