BENGALURU, July 23 Reuters India abolished a tax it had imposed on investors pumping money into its startups on Tuesday, in a move that is expected to spur innovation and boost funding for fledgling companies in Asia39;s No.3 economy.

To bolster the India startup ecosystem, to boost entrepreneurial spirit and support innovation, I propose abolishing angel tax for all classes of investors, Finance Minister Nirmala Sitharaman said in her budget speech.

Angel tax, introduced in 2012 in an attempt to prevent money laundering, has been a headache for nascent startups and their investors. It refers to the tax imposed on excess capital raised over fair market value.

Tuesday39;s move eliminates a major hurdle, making it easier and more attractive for investors to support earlystage startups, said Prashanth Prakash, a partner at venture capital firm Accel.

The move, which addresses a key demand from the startup community, follows several attempts to simplify the tax.

In 2019, the government exempted startups registered with the Department for Promotion of Industry and Internal Trade from its provisions. In 2023, it exempted the tax from being applied on certain types of foreign portfolio investors, domestic banks, insurance companies and sovereign wealth funds.

This forwardthinking move by the government eradicates a significant compliance burden, attracting investment and fostering an environment where startups can truly thrive, PhonePe CFO Adarsh Nahata told Reuters….