By Ritu Jha-
There were mixed reactions in the U.S. to various aspects of India’s national budget for 2024-25.
Indian American venture capitalists, the U.S. Chamber of Commerce, and industry bodies welcomed the announcement of the abolition of the angel tax (imposed on capital raised that is about a third more than fair market value), but expressed displeasure with the increase in capital gains tax, and said more could have done to boost investment.
July 22, India’s Union Finance Minister Nirmala Sitharaman announced the budget in the Lok Sabha, the lower house of India’s parliament, during which she said, “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.”
Introduced in the Finance Act of 2012, the tax was intended to curb money laundering through the purchase of shares at a high premium. It drew controversy when investors in startup companies were flooded with queries from the income tax department.
Though it took 12 years and many amendments after an uproar in 2019 to have the tax removed, veteran VC Kanwal Rekhi, managing director, Inventus Capital Partners and one of the pioneers
of the angel investor ecosystem in India, told indica, “Abolishing the angel tax is just stopping being stupid.”
However, he was not pleased with how welcoming the budget was for foreign investors.
“They have done nothing to boost investments,” he said.
Venkatesh Shukla, the general partner at Monta Vista Capital, was more positive.
“Looks like adults are in charge,” he said. “There was this concern that pressures to increase outlays on the social sector and to appease allies in Andhra Pradesh and Bihar [could cause the budget to] deviate from the fiscal discipline it has been following in recent years. I’m happy that is not the case. It is a deft balancing act.”
He was even happier about changes in the tax structure.
“Happy that the nuisance of the angel tax is gone! I had written articles in India against it and had a meeting with Prime Minister Narendra Modi himself to complain about it – way back in 2019,” he said. “It took a while but I’m glad it is history now.”
Serial entrepreneur Karl Mehta and chairman emeritus of the Quad Investors Network told indica, “From the VC standpoint the good news is that the honorable finance minister listened to investors,
both in India and U.S., and abolished the angel tax,” Mehta told indica. “The not-so-good news is that they increased capital gains tax and did not set a pathway for a U.S.-style QSBS (Qualified Small Business Scheme) tax break for doubling down on early-stage high-risk ventures.”
Rekhi also said he believed that to get foreign investment, the Indian government should, “cut long-term capital gains, not increase them. Look at what America did with QSBS.” He said that India needs to encourage investments that create jobs for Indians and that high capital gains taxes discourage such investments.
When it was pointed out that Sitharaman did announce that the rules and regulations for
Foreign Direct Investment (FDI) would be simplified, Rekhi said he heard that the government is aware of the situation and will be coming up with a five-year plan to attract more FDI.
Shukla told indica that the focus on increasing foreign investment by making it easier for foreign investors is a step in the right direction.
“But there is room to do a lot more, to exponentially increase foreign investment,” he said. “One big issue for foreign investors is regulatory uncertainty. You never know when some rule or regulations or tax laws will change. That is an ongoing concern in India for decades. The government will do well to provide regulatory stability for an extended period, to really open the investing floodgates.”
Atul Keshap, the president of the U.S.-India Business Council (USIBC), called the budget India’s investment- and jobs-focused budget, one that supported U.S.-India interests.
“Several of the budget’s economic measures are likely to have important strategic impact in areas of shared priority between India and the United States where USIBC has been a key partner to both governments,” he said. “Abolishing the angel tax clears an obstacle to ever-closer bilateral technology cooperation and innovation, a key focus of the Innovation Handshake, a government-led initiative which USIBC has played a foundational role in.”
Chandrajit Banerjee, director general, CII, said the union budget “provides continuity to India’s successful holistic economic strategy to drive growth with inclusion.”
Prakash Narayan, chair, ATEA Silicon Valley told indica , “We care deeply about the startup ecosystem and fostering entrepreneurship both in the U.S. and in India.”
Adding on he said, “It is good to see the bold and innovative proposals in the Union Budget (the first in PM Modi’s 3rd term) by FM Nirmala Sitaraman. They are aimed at boosting startups and the startup ecosystem. The measures in this budget will have an impact on employment and skilling. Abolishing the Angel Tax will have a positive impact on startups.”
