Aug 13, 2019
Angel Tax: Its time this colonial hangover gets removed
In Poetics, Aristotle described the Greek word Hamartia as “a fatal flaw leading to the downfall of a tragic hero or heroine.” Though used in the context of literary criticism, it can be easily be co-opted to describe Indian tax law—of how every notification of exemption that seems too good to be true always contains within it the seeds of its downfall. Nowhere is this art of the Achilles heel more prominent than in the “Angel Tax” notifications. The “Angel Tax”, or Section 56(2)(vii b), is a 2012 insertion by the then UPA government which taxes domestic capital invested into private Indian entities as income, if the investment was made above the ‘Fair Market Value’. This clause, a colonial hangover that discriminated against Indian investors in India, became a lightning rod over the past few years as it began to be indiscriminately applied towards Indian startup companies who raised the bulk of their funds from domestic sources. India has been a spectator in its startup story, with barely 10% of all funds raised by Indian startups coming from Indian sources, and a majority of that as seed or angel funding—the prime target of the “Angel Tax”.