Angel Tax Fallout: Cleantech Feels the Chill

India’s cleantech sector has been basking in attention—from startups building grid-scale storage to D2C brands going plastic-negative. But in recent months, something has shifted. VC deals have slowed. Founders are facing new paperwork. And investors are whispering one phrase: angel tax.

The rule change that shook early-stage funding

Last year, the government expanded the angel tax regime to include foreign investors. Startups now face increased scrutiny over valuations and compliance if they raise above a threshold. While meant to curb round-tripping and money laundering, it’s ended up snarling genuine capital too—especially in innovation-heavy sectors.

Cleantech gets caught in the crossfire

Unlike SaaS or fintech, cleantech startups often raise smaller, equity-heavy rounds at futuristic valuations based on impact metrics, not ARR. That makes them more vulnerable to angel tax assessments. Founders say deal timelines have doubled—and some angels have quietly stepped back altogether.

Policy meets paradox

This comes just as India doubles down on climate action—from hydrogen corridors to solar PLI schemes. Yet the early-stage engine that feeds innovation in EV infrastructure, carbon capture, and waste-tech is facing regulatory drag. The result: a growing mismatch between headline ambition and ground-level funding flow.

What next?

Several ecosystem voices are calling for exemptions or a sector-specific carveout. DPIIT has signaled it's “reviewing feedback”—but timelines remain fuzzy. Until then, cleantech founders are doing what they do best: adapting. Some are pivoting to debt, others to global capital. But momentum, once lost, is hard to regain.

The bata takeaway

India wants to lead the clean transition—but policy coherence is key. The angel tax may have been designed for financial hygiene, but its side effects are stalling exactly the kind of risk-taking cleantech needs. Innovation doesn’t wait—but it does relocate.