FreeComplianceAngel tax in India: what it was and why it no longer applies
For years, Indian startups worried about angel tax: income tax on the amount by which a share issue price exceeded the shares' fair market value. The Finance (No. 2) Act, 2024 abolished it for all classes of investors from the financial year 2024-25 onward.
What angel tax was
Under the old Section 56(2)(viib), if a closely held company issued shares to a resident at a price above fair market value, the excess was taxed as the company's income. Valuations by different methods often disagreed, and startups raising at ambitious valuations faced large demands. DPIIT-recognised startups could claim an exemption, but it came with conditions.
What still matters
- Valuation reports are still needed: FEMA pricing rules apply to foreign investment, and Companies Act rules require a registered valuer's report for preferential allotments.
- Source of funds scrutiny continues: unexplained credits can still be questioned.
- Past years remain open: assessments for years before the abolition can still raise angel tax issues.
Frequently asked questions
This guide is general information, not legal advice. Government fees and procedures change; confirm current figures before you file.
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