Don't need angel tax to stop money laundering: FM Sitharaman on Budget 2024

Union Budget 2024-25: Union Finance Minister Nirmala Sitharaman clarifies tax on long-term capital gains, angel tax, and government effort to widen the tax net

Union Finance Minister Nirmala Sitharaman presented her seventh consecutive Budget on Tuesday amid high expectations. In a post-Budget press conference, she and her officials provided clarifications on several key points, including abolishing the angel tax, its link to money laundering, and explaining the 12.5 per cent tax on long-term capital gains.

12.5 per cent tax on long-term capital gains

Addressing concerns about the 12.5 per cent tax on long-term capital gains, Sitharaman explained, "We wanted to simplify the approach to taxation, including for capital gains. The average taxation has actually come down to 12.5 per cent, which is the lowest in the last several years. This reduction encourages investment in the markets."

 

Officials further clarified that this tax mainly affects individuals earning above Rs 15 lakh per annum, adding that the reduction would only marginally affect those concerned or not at all.

Angel tax and money laundering

In a significant move, the National Democratic Alliance (NDA) government decided to abolish the angel tax, part of Section 56 (2) (vii b) provision of the Income Tax Act. The tax was imposed on funds raised by startups from angel investors on funds that exceed the fair market value of the company. Under this, the premium paid by investors was considered "income" taxable at around 31 per cent.

The tax also helped check money laundering practices that may occur through investments in startups.

When asked whether the ruling government had any concerns about money laundering now that the tax was abolished, FM Sitharaman stated that the now removed provision was primarily a tax provision, not a system to check money laundering.

"The angel tax was introduced in 2012 by the UPA government. It was a measure to tackle money laundering through tax provisions."

Officials at the press conference noted, "There are other measures for the income tax department to address issues of money laundering and to trace the source of funds. Provisions of the Companies Act can also be invoked if there is deliberate undervaluing of shares."

Widening tax nets and asset monetisation

Sitharaman emphasised the government's ongoing efforts to widen the tax net, stating, "India's tax net needs to be expanded in both direct and indirect taxation. Additionally, PSU (public sector undertakings) dividends have been improving due to increased valuations and better performance, contributing to non-tax revenue mobilisation."

"For three years now, we have been talking about asset monetisation, which is not selling of assets but optimum utilisation of those assets which are lying in the form of unutilised stadiums or land which is available with PSUs that can be utilised for better purposes," the finance minister added.