Context:
Amid a sharp decline in funding for startups, Indian Industries has sought the removal of Angel Tax and revision of Capital Gains Tax.
About Angel Tax:
- Government taxes funds raised by startups if they exceed the fair market value of the company.
- It was introduced in the Income Tax act which taxes any investment, received by any unlisted Indian company, valued above the fair market value by treating it as income.
- Aims to prevent unaccounted money by taxing investments in closely held companies when shares are overvalued.
- The excess funds raised at prices above fair value is treated as income, on which tax is levied.
- Levied at a rate of 30.9% on net investments in excess of the fair market value.
About Capital Gains Tax (CGT):
- Defined as profits accumulated from the sale of any capital asset.
- Eg. Land, buildings, house property, vehicles, patents, trademarks, leasehold rights, machinery, etc
- Profits are categorised as an ‘income’, hence are liable for taxation.
- Applies to both individuals and businesses.
- Types of CGT:
- Short-term CGT:
- Asset held for less than 36 months (24 months for immovable properties).
- Long-term CGT:
- Asset held for over 36 months.
- Special Cases: Preference shares, equities, UTI units, securities, equity-based mutual funds, and zero-coupon bonds are considered long-term if held for over a year.
- Short-term CGT:
Source: Indian Express | The Hindu
Previous Year Question
What does venture capital mean?
[UPSC Civil Services Exam – 2014 Prelims]
(a) A short-term capital provided to industries
(b) A long-term start-up capital provided to new entrepreneurs
(c) Funds provided to industries at times of incurring losses
(d) Funds provided for replacement and renovation of industries
Answer: (b)
