Budget 2013: Tax break for SEBI-registered angel investors
The Union Budget for 2013-2014 seeks to reverse or correct some of the measures announced last February with respect to angel investments in startups. The corrective measures announced today are as follow:
1. Angel investors bring both experience and capital to new ventures. SEBI will prescribe requirements for angel investor pools by which they can be recognised as Category I AIF venture capital funds.
2. Venture Capital Funds have been allowed pass through status under the Income Tax Act. The relevant regulations of SEBI have been replaced by Alternative Investment Fund Regulations. Hence, I propose to extend, subject to certain conditions, pass through status to category I Alternative Investment Funds registered with SEBI as venture capital funds. Angel Investors who are recognised as category I AIF venture capital funds will also get pass through status.
Industry reactions to the measures announced
Som Mittal, president, Nasscom
“Angel investing is critical for the country and the recommendations on structuring this through SEBI and providing pass through benefits is a step in the right direction. However, it would be important to amend Section 56 to make this applicable to investments above Rs 5 crore. NASSCOM will work with the Indian Angel Network and SEBI to take this forward.”
Ravi Kiran, co-founder, VentureNursery
“Alternative Investment Funds getting pass through benefit needs to make a distinction between pooled angel investment versus individual investment.”
Padmaja Ruparel, president, Indian Angel Network
“Angel investing is critical for the country and is a free flowing activity around the world. We would have preferred if Section 56 had been dropped or at least made applicableonly to investments above Rs 5 crore. However, we are happy that the Honourable Finance Minister has recognized genuine angel investing and that this activity should be encouraged. We see this as a positive step. We will work with SEBI to see how AIF Category I can be applied to Angel Investors.”
Sunil K Goyal, founder, YourNest Angel Fund
Angel investing and Category 1 Alternative Investment Funds (AIF) becoming eligible for pass through shall encourage funding of startups.
Read about what happened with respect to angel investments in the last budget:
- Has Mr Mukherjee set the stage for an Angel Capital Association in India?
- The uncertainty of being an angel-backed startup in India
What am I missing here – the notion of AIF “benefit” to individual angel investors is meaningless. It is a tax passthrough, so if there is no intermediary then passthrough has no meaning. Please note that this is not a tax break (which then would have the rationale of applying to individuals). The same applies for angel networks where the investment is made by individual angels and not through a pooled vehicle.
Also, does any one know if all the obligations of AIFs will start applying to angel funds?