Angel Tax Is Dead — What CAs Still Need to Check for Legacy Assessments
Section 56(2)(viib) of the Income-tax Act — the "angel tax" — no longer applies to any share issuance made on or after 1 April 2025. The Finance (No. 2) Act 2024 abolished it entirely, for every class of investor, resident and non-resident alike, without needing the DPIIT recognition or valuation conditions that used to gate relief. If you're advising on a fresh fundraise today, there's nothing to test.
That doesn't mean the provision is irrelevant to a current engagement. It was in force from AY 2013-14 through AY 2025-26 — twelve assessment years — and any issuance in that window can still be sitting in an open assessment, reassessment, or appeal today.
What the Tax Actually Tested
Section 56(2)(viib) taxed the issuing company, not the investor, on the excess of the price at which it issued shares to a resident investor over their fair market value under Rule 11UA — treated as income from other sources. Fair market value was computed under one of two methods: Net Asset Value (NAV), based on the balance sheet, or Discounted Cash Flow (DCF), certified by a SEBI-registered Category I merchant banker.
The Two Carve-Outs That Still Matter for Legacy Reviews
Two exemptions kept many genuine fundraises out of the tax even while it was in force, and both still need to be applied correctly when reviewing a pre-April-2025 issuance:
Rule 11UA(4) safe harbour — if the issue price did not exceed 110% of the Rule 11UA fair market value, the issue price itself was accepted without adjustment. A 10% band, not a bright-line match to FMV.
DPIIT startup exemption — a startup recognised by DPIIT, filing the prescribed self-declaration, was exempt provided its paid-up capital and share premium after the proposed issue did not exceed ₹25 crore. This is a post-issue test, not a pre-issue one — a company just under ₹25 crore before the raise can still fail the test if the new issue pushes it over.
Where This Still Shows Up in Practice
- Open assessments and reassessments for issuances made in AY 2013-14 through AY 2025-26, where the department is questioning the valuation method used or whether the safe harbour genuinely applied
- Appeals in progress where a prior-year addition under Section 56(2)(viib) is being contested
- Due diligence on companies with a pre-2025 fundraise history, where an investor or acquirer wants comfort that historical issuances didn't carry unresolved angel tax exposure
- Valuation report review for older issuances, checking whether the NAV or DCF computation used at the time would actually survive scrutiny under Rule 11UA as it stood then
Frequently Asked Questions
From what date is angel tax abolished?
Every share issuance from 1 April 2025 onward (FY 2025-26 and later) carries no Section 56(2)(viib) exposure, regardless of issue price, valuation, or investor category. The Finance (No. 2) Act 2024 made this change without re-imposing any of the older DPIIT or valuation conditions.
Does angel tax still apply to non-resident investors for pre-2025 issuances?
The taxable event under Section 56(2)(viib) was specifically limited to share issuances to resident investors during the years it was in force — non-resident investor issuances were outside its scope even before abolition. Post-1 April 2025, the point is moot for all investor categories.
Who was liable to pay angel tax — the company or the investor?
The issuing company. It was taxed as the company's income from other sources on the excess consideration received, not as income in the hands of the investor who paid the premium.
Is the DPIIT exemption tested on paid-up capital before or after the new issue?
After. The ₹25 crore ceiling applies to paid-up capital plus share premium immediately following the proposed issue, not the company's pre-issue position.
CORAA's Angel Tax Calculator (Legacy) is scoped deliberately to pre-1 April 2025 issuances — it runs the Rule 11UA(4) 10% safe-harbour test and the post-issue DPIIT ₹25 crore exemption test for exactly the legacy-review and open-assessment work this provision still generates, without pretending it has any forward-looking relevance.