Angel Investor Categories, New Angel Tax Regime
Angel Investor Categories, New Angel Tax Regime
Subject : Economy
Section: Fiscal policy
Angel fund is a sub-category of Venture Capital Fund (VCF) under Category-I Alternative Investment Fund (AIF) that raises funds from angel investors
Key Points:
- It raises funds by way of issue of units to angel investors. “Angel investor” means any person who proposes to invest in an angel fund and satisfies following:
- net tangible assets of at least Rs. 2 crore,
- Has investment experience, or is a serial entrepreneur, or is a senior management professional with at least ten years of experience
- Conditions for an Angel Fund:
- It is a body corporate with a net worth of at Rs. 10 crore
- It is an AIF registered under SEBI (Alternative Investment Funds) Regulations, 2012 or a VCF registered under the SEBI (Venture Capital Funds) Regulations, 1996.
- It shall accept, up to a maximum period of 3 years, an investment of not less than 25 lakh from an angel investor.
- Not have more than 49 angel investors.
| What are Alternative Investment Funds (AIFs) ?
Alternative Investment Fund or 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. Note: AIF cannot make an invitation to the public at large to subscribe its units and can raise funds from the sophisticated investors only through private placement. Category I AIF:
Category II AIF Category III AIF Category I AIFs? AIFs which invest in start-up or early stage ventures or social ventures or SMEs or infrastructure or other sectors or areas which the government or regulators consider as socially or economically desirable and shall include venture capital funds, SME Funds, social venture funds, infrastructure funds and such other Alternative Investment Funds as may be specified. Category II AIFs? AIFs which do not fall in Category I and III and which do not undertake leverage or borrowing other than to meet day-to-day operational requirements and as permitted in the SEBI (Alternative Investment Funds) Regulations, 2012. Various types of funds such as real estate funds, private equity funds (PE funds), funds for distressed assets, etc. are registered as Category II AIFs. Category III AIFs? AIFs which employ diverse or complex trading strategies and may employ leverage including through investment in listed or unlisted derivatives. Various types of funds such as hedge funds, PIPE Funds, etc. are registered as Category III AIFs. |
Taxation Treatment of Angel Funds:
Exemption: Government has set two separate criteria for tax exemptions
- Investment in startups recognized by the Department of Promotion of Industry and Internal Trade (DPII) of the Commerce Ministry. This is to support domestic start-ups.
- Certain entities (see below) incorporated in any of the 21 specified countries are exempt. This is to attract more FDI from countries that have a robust regulatory framework. Exempt entities have to belong to one of the following:
- Government and government-related investors such as central banks, Sovereign Welth Funds, International or multilateral organisations with government having equity of 75% or more.
- Banks or Insurance companies, entities registered with the SEBI as Category-I foreign portfolio investor (FPI)
- Endowment Funds associated with a university, hospital or charity
- Pension Funds
| List of countries for which specified entities are exempt in terms of Angel Tax are: Australia, Austria, Belgium, Canada, Czech Republic, Denmark, Finland, France, Germany, Iceland, Israel, Italy, Japan, South Korea, New Zealand, Norway, Russia, Spain, Sweden, the UK and the US |