Concept of Angel Tax & Taxability under Income Tax Act, 1961-

Concept of Angel Tax & Taxability under Income Tax Act, 1961- An Introduction

Ever since the government started with the plan of Startup India, Indian companies have seen incredible investments. The investor community across the world has come up with serious investments in the Indian market because of the sheer size of the market that is up for grabs in the second most populous country in the world. High net worth individuals, foreign funds, angel investors, venture capitalists, almost every possible individual or a company that is capable of investing has played a role in investing in various Indian startups.

However, while the government promotes the development of startups in India, the government has continued to impose the angel tax on startups. The tax was introduced in 2012, but the government had promised to exempt companies from it. This finally happened in February 2019, when the Indian government made some amendments to the angel tax, giving a much-needed breather to startups.

Under SEBI (Alternative Investment Funds) Regulations, 2012 ("AIF Regulations"), AIF means any fund established or incorporated in India which is a privately pooled investment vehicle which collects funds from sophisticated investors, whether Indian or foreign, for investing it in accordance with a defined investment policy for the benefit of its investors.

AIF does not include funds covered under the SEBI (Mutual Funds) Regulations, 1996, SEBI (Collective Investment Schemes) Regulations, 1999 or any other regulations of the Board to regulate fund management activities. Further, certain exemptions from registration are provided under the AIF Regulations to family trusts set up for the benefit of 'relatives‘ as defined under Companies Act, 1956,employee welfare trusts or gratuity trusts set up for the benefit of employees, 'holding companies‘ within the meaning of Section 4 of the Companies Act, 1956 etc.

Section 3 (1) of the SEBI (AIF) Regulations, 2012 provides for mandatory registration of the AIF for any entity or individual to operate.