Angel Tax Explainer
Angel Tax
Explained & Abolished
Section 56(2)(viib) is gone as of April 2024 — but if you raised before that date, retrospective assessments are still possible. Know your exposure.
Angel tax is dead — for shares issued from 1 April 2024
Finance Act 2024 deleted Section 56(2)(viib) from the Income Tax Act, 1961 entirely — the provision has no equivalent in the Income Tax Act, 2025. No startup, DPIIT-recognised or not, faces angel tax on any shares issued on or after 1 April 2024. This applies to domestic and foreign investors alike. Future fundraises are clean.
History of Section 56(2)(viib)
Click any milestone to expand details.
Check your exposure
When did you raise?
DPIIT recognised at time of raise?
Investor type
Higher exposure — no DPIIT exemption on record
Without DPIIT recognition at the time of investment, your pre-April 2024 rounds were exposed to Section 56(2)(viib). If the consideration received exceeded the FMV of shares (under NAV or DCF method), the excess was taxable as income from other sources in the hands of your company. Pending assessments can still proceed for these periods.
What to do
- 1.Pull all share issuance data — date, price, number of shares, investors
- 2.Get a retrospective valuation report (NAV or DCF) for the relevant AYs
- 3.If already assessed: engage tax counsel for appeal to CIT(A) or ITAT
- 4.If not yet assessed: check your return of income for those AYs — was the premium disclosed?
- 5.For rounds between April 2023–March 2024 with foreign investors: specific CBDT exemption analysis needed
- 6.Note: abolition is prospective — it doesn't extinguish existing notices or assessments
AY 2025-26
First AY with no angel tax
Shares issued from 1 Apr 2024
~30%+
Effective tax rate on excess
Income from other sources
₹25 Cr
DPIIT exemption cap
Aggregate investment per investor class
NAV / DCF
Acceptable FMV methods
Company's choice under Rule 11UA
This explainer reflects the Income Tax Act, 2025 (which does not carry forward Section 56(2)(viib) of the old 1961 Act), Finance Act 2024, CBDT Notification dated 19 Feb 2019, and RBI Master Directions. Pending assessments for pre-April 2024 AYs are governed by the 1961 Act as it stood at the time. Consult a tax counsel for any open assessments or SCNs.
Common questions
Angel tax, statute-cited.
What was angel tax under s.56(2)(viib)?+
Section 56(2)(viib) of the Income-tax Act 1961 (introduced by the Finance Act 2012) taxed a closely held company on the excess of consideration received for shares over their fair market value, treating the excess as income from other sources — the 'angel tax' on premium share issues. For unlisted companies the FMV was computed under Rule 11UA of the Income-tax Rules 1962 using the NAV or DCF method.
Was angel tax extended to foreign investors?+
Yes — the Finance Act 2023 extended s.56(2)(viib) to shares issued to non-residents, covering foreign angels and early-stage foreign funds. This created a compliance conflict between the income-tax valuation (Rule 11UA) and RBI/FEMA pricing rules, and caused widespread concern among founders who had already raised from foreign investors.
Is angel tax still applicable today?+
No — the Finance Act 2024 deleted s.56(2)(viib) entirely, effective from 1 April 2024 (AY 2025-26). No company, DPIIT-recognised or otherwise, faces angel tax on shares issued on or after 1 April 2024, for domestic or foreign investors. The provision has no equivalent in the Income-tax Act 2025 — future fundraises are clean.
Can I still be assessed for pre-April 2024 rounds?+
Yes — if you raised before 1 April 2024 without DPIIT recognition (or with premium exceeding the s.56(2)(viib) exemption limit of ₹25 crore for recognised startups), pending assessments for those periods can still proceed, and the excess over FMV is taxable as income from other sources. The explainer flags this exposure so old rounds aren't forgotten.
Why keep DPIIT recognition if angel tax is gone?+
Because recognition still unlocks the s.140 (formerly 80-IAC) tax holiday, the s.54GB capital-gains exemption, Startup India funds, and procurement preference — none of which depend on the now-abolished angel tax. The explainer keeps the two benefits separate so you don't drop a valuable certificate over a dead provision.