Angel Funds FAQs

ANGEL
FUNDS
BASICS AND FAQS
WHAT ARE ANGEL FUNDS
What is Angel Funds?
As per SEBI AIF Regulations, Angel Funds are funds from traditional sources of finance.
subcategory of Venture Capital Fund under
Angel funds can raise funds by the way of
Category I- Alternative Investment Fund.
issuance of units to Angel Investor as defined
Angel funds encourage entrepreneurship in the SEBI AIF Regulations. It allows to invests in DPIIT
country by financing small startups at a stage Recognized Startups with prescribed limitation
where such start-ups find it difficult to obtain in Investment Amount
Angel Fund
Particulars Angel Fund

Investment Criteria of Startup Invests only in DPIIT recognised startups
Turnover Limit of Startups for Less than 100 Crores Rupees
Investment
Eligible Investor Can issue units only to Angel Investor,
as per definition of SEBI
Minimum Investment 25 Lakhs over a period of 5 years
TYPICAL ANGEL FUND STRUCTURE
Investor Investor Investor

(Resident or Non-Resident) (Resident or Non-Resident) (Resident or Non-Resident)
Management Trusteeship
of pool of funds services for a
for share in trusteeship fee
Asset Management
investment returns
Company / Investment
Trustee Company
Manager
Sponsor of the Fund

Angel Fund Investments in Portfolio Companies
Portfolio co 1 (Scheme 1**) Portfolio Co. 2 (Scheme - 2**) Portfolio Co. 3 (Scheme - 3**)
Angel Funds Basics and FAQs | August 2021

REQUIREMENT FOR ANGEL FUNDS
Investment in Angel Funds Investments by Angel Fund
• Angel funds shall only raise funds by way of •
Angel Fund shall invest in venture capital
issue of units to angel investors undertaking, which fulfills following criteria
- DPIIT recognized Startup
• An angel fund shall have a corpus of at least - Turnover < 100 crores in any preceding
five crore rupees financial year
• Angel funds shall accept, up to a maximum - Not promoted or sponsored by group
period of 5 years, an investment of not less companies, whose total turnover exceeds
than INR 25 lakh from an angel investor. 300 crores
• Angel Fund can launch multiple Scheme, Each •

Minimum Investment is 25 lakhs in Startup
Scheme can invest in Startups and maximum is 10 crore
•
Each Scheme can have maximum 200 • Lock in period of 1 year
investors •
Angel fund can invest in securities of
companies incorporated outside India
REQUIREMENT FOR ANGEL INVESTOR

In order to invest in Angel Funds, Angel Investor should satisfy below conditions
Particulars Minimum Net worth Other Qualifications

Individual Two crores excluding value of • Early stage investment experience, or
his principal residence And • Experience as a serial entrepreneur
• A senior management professional with at
least ten years of experience;
Corporate Ten Crores NA
AIF NA Any AIF Registered under SEBI or Venture Capital
Fund registered under the SEBI (Venture Capital
Funds) Regulations, 1996.

TAXATION OF ANGEL FUNDS
Investment in Angel Funds
• Tax pass-through status for Angel Funds (b) a
s per ”rates in force” (i.e. lower of tax
(excluding income from business or treaty rates or domestic tax law) for non-
profession). resident investors.
• Therefore no tax is payable by the Fund on
• Business income is taxable at the Fund level
gains from Investments and correspondingly distribution of such
• Investors / unit holders of the Fund will be income will be exempt in the hands of the
liable to pay Tax investors
• AIFs to withhold tax on distribution/accrual of • Fund shall file the necessary returns with
income the Income Tax to reflect the above for the
(a) at the rate of 10% for resident investors; or individual unit holders
TAXATION FOR UNIT HOLDERS

Unit holders will be chargeable to tax in the same manner, as if investments are made by them
directly.
Nature of Holding Resident Non Resident

Long Term Capital Gain - 20% (with indexation benefit) • 10% without Foreign Currency
unlisted shares (if Holding fluctuation or Indexation
Period is more than 2 years) Benefit
Short Term Capital Gain - Based on personal tax profile a. 40% for foreign companies
Unlisted Shares (if Holding of the unit holder / investors b. 30% for those not covered
Period is less than 2 years) above read with DTAA
FREQUENTLY ASKED QUESTIONS –
ANGEL FUND
Q1: What is the Minimum Investment Amount?
A1: Investor to invest Minimum INR 25 Lakhs over the period of 5 Years in Angel Fund
Q2: Is there a limit to the number of Companies that I can invest in?
A2: No. Investor can invest as many companies as you want.
Q3: .Can Non Resident Invest in Fund?

A3: Non Resident Other than citizen of Bangladesh and Pakistan can invest in the fund
Q4: What are the implications of Flow of funds through NRE, NRO and Foreign Bank Accounts?
A4: In case of Investments made through NRE/Foreign Bank Accounts, it will be treated as Foreign
Direct Investment and a RBI Reporting would be done by Angel Fund. In case of Investments
made through NRO accounts, it will be treated at par with Domestic Investments and hence
money at the time of exit will be remitted ONLY in Indian Accounts
Q5: What is the Minimum Lock-In Period?

A5: Investment by Angel Fund in Startup has a minimum lock in period of one year
Q6: .Whether the Fund accept investments from joint investors?

A6: The Fund may accept the following as joint investors for the purpose of investment of not less
than twenty five lakh rupees:
i. an investor and his/her spouse ii. an investor and his/her parent
iii. an investor and his/her daughter/son
With respect to the above investors, not more than 2 persons shall act as jointinvestors in an
AIF. In case of any other investors acting as joint investors, for every investor, the minimum
investment amount of 25 Lakhs shall apply. Joint investors shall mean where each of the investor
contributes towards the AIF.
Q7: What are the Tax Implications of Income of Angel fund to a Resident Investor?
A7: Z Nation Lab Growth Fund (“Venture Catalysts Angel Growth Fund” or “Fund”), being a SEBI
Registered Category I Angel Fund, enjoys a Pass through Status. Income (except Business Income)
will be taxable in the hands of Unit holders, as if Investment is directly made by the Unit Holders.
For Business Income, Tax will be paid at Fund level, hence exempted in the hands of Unit holders.
Category Tax Implications Rate
Dividend Taxable in the hands of Unit holders in Rate applicable to Unit holder
the same category of Income
Interest Taxable in the hands of Unit holders in Rate applicable to Unit holder
Business Income Taxable in the hands of Fund. Hence Maximum Marginal Rate
exempted in the hands of Unit holders

ANGEL FUND
Q8: What are the Tax Implications of Income of Angel fund to a Non Resident Investor?
Category Tax Implications Rate
Dividend Taxable in the hands of Unit holders in Rate applicable to Unit holder
Interest Taxable in the hands of Unit holders in Rate applicable to Unit holder
Business Income Taxable in the hands of Fund. Hence Maximum Marginal Rate
exempted in the hands of Unit holders
Further, a non-resident shall be entitled to claim benefits, if any, under the applicable Double
Tax Avoidance Agreement (DTAA) that India may have entered into with its country of residence,
subject to fulfilment of necessary conditions as applicable
Q9: What are the Tax Implications in case of Capital Gains Income Distributed by Angel Fund?
Category Shares (Equity/Preference) Debentures
Long Term Capital Gain • Resident - 20% with Indexation • Resident - 20%
• Non Resident - 10% without • Non Resident - 20%
indexation benefit or Foreign Period of Holding - Should
Exchange Fluctuation Benefit be more than 3 years
Period of Holding - Should be more
than 2 years
Short Term Capital Gain • Resident - at applicable Rate • Resident - at applicable rates
• Non Resident - 40% • Non Resident - 40%
Period of Holding is less Period of Holding - Should
than 2 years be more than 3 years
Q10: What are the Tax Implications in case of Sale of Units of Angel Fund?
Nature of Holding Resident Non Resident
Long Term Capital Gain 20% 20%

(if Holding Period is
more than 3 years)
Short Term Capital Gain a. Slab rates for individual & HUF a. 40% for foreign companies
(if Holding Period is less c. 30% for those not covered above b. 30% for those not covered
than 3 years) above
Q11: Can TDS Deducted can be claimed as credit in Country of Residence?

A15: If India has Tax Treaty with the Investor’s Country of Residence, then Foreign tax Credit will be
available as per Tax Treaty

ANGEL FUND
Q12: Whether any TDS needs to be deducted on Income?
A12: As per Section 194LBB of the Income Tax Act, any income payable by the Fund other than a
Business Income will be liable for Tax deduction at source (TDS) at the time of making payment or
credit whichever is earlier on the Income which is being distributed.
Type of Residential Applicable TDS Rate

Status
Resident 10%
Non Resident or As per rates in force read with DTAA A non-resident shall be entitled
Foreign Company to claim benefits, if any, under the applicable Double Tax Avoidance
Agreement (DTAA) that India may have entered into with its country of
residence, subject to fulfilment of necessary conditions as applicable
Q13. When will TDS certificates be issued to the Unit holders?

A13. The TDS certificates in Form 16A shall be issued to the Unit holders on quarterly basis in
accordance with the timelines prescribed under Indian income-tax law
Q14: Can Investment Fees paid by the Fund be considered as Cost of Acquisition of Units?
A14: Yes Unit-Holder may include Transaction Fee as a part of Cost of Acquisition of Units
Q15: Can Loss be allowed to carried forward?

A15: Losses incurred by such AIFs (Other than business losses) can be passed through to its Unit
Holders to be able to set-off or carry forward such losses against their income, provided such
investors should have held units in the AIF for a period of more than 12 months.
Q16: Can TDS Deducted can be claimed as credit in Country of Residence?

A16: If India has Tax Treaty with the Investor’s Country of Residence, then Foreign tax
Credit will be available as per Tax Treaty
Q17: What is the Procedure to be followed on an Exit like Forms, Costs and Documentation?
A17: Angel Fund will deduct Tax to be payable on the income gained and give Tax Deduction
certificate. Investor can claim the Tax in their country by Filing Foreign Tax Credit Form.

THANK YOU
This publication has been written in general terms and we

recommend that you obtain professional advice before acting
or refraining to act on any of the contents of this publication.
Venture Catalysts bears no responsibility to any third

party placing reliance on this publication for any loss or
consequential damages.
Copyright, August, 2021 Venture Catalysts. All Rights Reserved.

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ANGEL

Particulars Angel Fund

TYPICAL ANGEL FUND STRUCTURE

Investor Investor Investor

Sponsor of the Fund

Angel Funds Basics and FAQs | August 2021

• Angel Fund can launch multiple Scheme, Each •

REQUIREMENT FOR ANGEL INVESTOR

Particulars Minimum Net worth Other Qualifications

Angel Funds Basics and FAQs | August 2021

TAXATION FOR UNIT HOLDERS

Nature of Holding Resident Non Resident

Q3: .Can Non Resident Invest in Fund?

Q5: What is the Minimum Lock-In Period?

Q6: .Whether the Fund accept investments from joint investors?

Category Tax Implications Rate

Angel Funds Basics and FAQs | August 2021

Category Tax Implications Rate

Category Shares (Equity/Preference) Debentures

Nature of Holding Resident Non Resident

Long Term Capital Gain 20% 20%

Q11: Can TDS Deducted can be claimed as credit in Country of Residence?

Angel Funds Basics and FAQs | August 2021

Type of Residential Applicable TDS Rate

Q13. When will TDS certificates be issued to the Unit holders?

Q15: Can Loss be allowed to carried forward?

Q16: Can TDS Deducted can be claimed as credit in Country of Residence?

Angel Funds Basics and FAQs | August 2021

This publication has been written in general terms and we

Venture Catalysts bears no responsibility to any third

Copyright, August, 2021 Venture Catalysts. All Rights Reserved.

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• Angel Fund can launch multiple Scheme, Each •