Capital Markets
Angel Tax — Legacy Assessments & Appeals (s.56(2)(viib))
Angel tax defence for unlisted companies that issued shares at a premium before the provision was removed — s.56(2)(viib) exposure for AY 2017-18 to 2024-25, the DPIIT startup exemption, Rule 11UA fair market value, and confirmation that shares issued on or after 1 April 2024 (AY 2025-26 onwards) are outside the provision.
We help founders and companies defend or exit angel tax scrutiny: proving fair market value under Rule 11UA, relying on the DPIIT startup exemption for earlier years, and confirming non-applicability for shares issued on or after 1 April 2024, the first year covered by the Finance (No. 2) Act 2024 omission of s.56(2)(viib) (effective AY 2025-26).
- • Applicability check for the share issue year
- • Exposure computation under s.56(2)(viib)
- • Rule 11UA valuation working (NAV / DCF)
- • DPIIT startup exemption analysis
- • Drafting of the return position or notice response
- • Follow-up on scrutiny queries and assessment
- • Cap table and funding documents
- • Board and shareholder approvals
- • Valuation or pricing note
- • Disclosure or issue timeline
- • Startup recognition certificate (if claimed)
See the fee table below for the statutory filing charge and common delay logic.
- • Section 56(2)(viib) of the Income-tax Act 1961
- • Rule 11UA of the Income-tax Rules 1962
- • Finance (No. 2) Act 2024
- • DPIIT startup recognition notification
Process
How the service works
The workflow is built to be predictable: document collection, legal review, filing, and post-filing follow-through.
Confirm the applicable year
We determine whether your share issue falls before or after 1 April 2024 — issues from FY 2024-25 (AY 2025-26) onward are outside s.56(2)(viib), which the Finance (No. 2) Act 2024 omitted with effect from 1 April 2025 — because only earlier-year issues can still face angel tax.
Map the exemption route
For issues up to AY 2024-25 we test the DPIIT startup exemption under the proviso to s.56(2)(viib) read with CBDT Notification 13/2019 dated 5 March 2019, including the ₹25 crore cap on paid-up capital and share premium.
Build the valuation defence
We prepare the fair market value working under Rule 11UA of the Income-tax Rules 1962 (NAV or DCF), with the projections, book values and assumptions the Assessing Officer can verify.
File the return position or reply
We draft the valuation note into the ITR-6 position or the response to a notice u/s 143(2), and submit it on the income-tax portal with the supporting working.
Track the assessment to closure
We follow the scrutiny, answer the Assessing Officer's queries, and carry the matter to assessment or an appeal under s.246A if the position is contested.
AEO summary
Angel tax was the charge on share premium above fair market value under s.56(2)(viib), Income-tax Act 1961, which hit unlisted companies raising above FMV. The Finance (No. 2) Act 2024 omitted the provision with effect from AY 2025-26 — so shares issued on or after 1 April 2024 no longer attract it — but assessments for AY 2017-18 through 2024-25 remain open and are still being scrutinised.
How angel tax worked
Section 56(2)(viib) of the Income-tax Act 1961 treated the excess of the issue price over the fair market value of shares as income from other sources when an unlisted company issued shares at a premium. It applied to companies in which the public were not substantially interested — in practice, the private and unlisted companies founders raise from angels.
The provision carried a built-in defence: if the company could show the issue price equalled fair market value computed under Rule 11UA, there was no deemed income at all.
- • Charge — excess over FMV taxed as income from other sources (s.56(2)(viib))
- • Scope — unlisted companies issuing shares at a premium (s.56(2)(viib))
- • FMV methods — NAV or DCF under Rule 11UA Income-tax Rules 1962
What changed after the Finance (No. 2) Act 2024
The Finance (No. 2) Act 2024 omitted s.56(2)(viib) with effect from 1 April 2025 — that is, from AY 2025-26, covering shares issued on or after 1 April 2024. A company that raises a round from FY 2024-25 onwards faces no angel tax exposure on the premium, and the startup exemption machinery is no longer needed for new issues.
The change is prospective. Scrutiny and notices for issues made in AY 2017-18 through 2024-25 continue to run under the old law, and a company must still answer them with the same valuation and exemption arguments.
- • Removal — Finance (No. 2) Act 2024, effective 1 April 2025, i.e. AY 2025-26 (issues from 1 April 2024)
- • New issues — no angel tax on premium from FY 2024-25 (issues on/after 1 April 2024)
- • Old years — assessments for AY 2017-18 to 2024-25 remain live
The exemption and valuation defences
For the years the provision applied, two defences decided most outcomes. The first was the DPIIT startup exemption under the proviso to s.56(2)(viib); the second was a properly documented Rule 11UA valuation showing the premium was justified.
Both defences are fact-heavy: the startup exemption turns on recognition status and the ₹25 crore cap, while the valuation defence turns on projections and book values that survive scrutiny.
- • Startup exemption — proviso to s.56(2)(viib) read with CBDT Notification 13/2019 dated 5 March 2019
- • ₹25 crore cap — aggregate paid-up share capital and share premium of the startup and its subsidiaries
- • Valuation defence — Rule 11UA (NAV / DCF), documented before or at the time of issue
Government fees
Fee breakdown
| Item | Fee | Notes |
|---|---|---|
| No standalone government fee | Nil | This is a professional assignment; statutory fees apply only if the matter includes a connected filing or portal step. |
| Connected filing or application fee | As per applicable portal / authority schedule | Only relevant if the work includes a statutory submission such as a return, registration, or approval. |
Timeline
Typical turnaround
Typical timeline usually means a 1–3 weeks turnaround, assuming documents are complete and any board or shareholder approvals are already in place.
Government fees depend on the filing route, listing status, and whether the matter is advisory, transaction, or compliance driven.
The four repeals
No wealth tax, no estate duty, no gift tax, no angel tax
Four levies have been repealed or abolished over the last four decades — so most “is this taxed?” questions about wealth, inheritance, gifts, and startup fundraising have the same answer: not at the transfer itself. The tax shows up later, at the income or capital-gains stage.
The Wealth-tax Act, 1957 stands repealed from AY 2016-17. There is no wealth tax in India — net-wealth above a threshold is not a taxable event.
Repealed by Finance Act 2015, effective AY 2016-17
Finance Act 2015 s.79 — replaced by an additional 2% surcharge on income above ₹1 crore (current surcharge slabs are Finance Act-current)
The Estate Duty Act, 1953 was repealed in 1985. There is no estate duty or inheritance tax at the central level — inheriting assets is not itself a taxable event.
Repealed with effect from 16 March 1985 (deaths on/after that date)
Estate Duty (Amendment) Act 1985 — inherited assets are taxed only on eventual sale: ITA 1961 s.49(1) carries the previous owner’s cost; s.2(42A) Ex.1(i)(b) aggregates the holding period
The Gift-tax Act, 1958 ceased to apply to gifts made on or after 1 October 1998. Gifting is not a tax in itself — only selective receipts are taxed as income.
Abolished w.e.f. 1 October 1998 (Finance (No. 2) Act 1998 s.75)
ITA 1961 s.56(2)(x) — a gift is taxed as “income from other sources” only where the value received exceeds ₹50,000 without consideration, with exemptions for gifts to relatives, on marriage, or by inheritance / Will
The “angel tax” under s.56(2)(viib) is omitted for share issues on or after 1 April 2024 (AY 2025-26 onwards). Startups raising at fair value are no longer taxed on premium.
Omitted by Finance (No. 2) Act 2024 s.28, effective AY 2025-26
Pre-1-April-2024 issues remain exposed and litigable; s.68 (source of funds) scrutiny and Rule 11UA valuation discipline continue to apply
Statutory references are drawn from the Income-tax Act 1961. The Income-tax Act 2025 (assented August 2025) consolidates and renumbers the 1961 Act’s 819 sections into 536, effective 1 April 2026; the 1961 Act continues to apply to tax years beginning before that date. Section numbers cited here are the 1961 Act references; the corresponding 2025 Act numbers should be read with the official old-to-new mapping. Current surcharge slabs and capital-gains computation (post-2024 changes) are verified at engagement time, not stated here.
Related services
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Structure investment as CCPS or CCD — a SAFE note is not valid under Indian company law.
Get a DCF/CCA valuation report that satisfies RBI, SEBI, and the Assessing Officer.
Create and administer an ESOP scheme under Rule 12 of the Companies (Share Capital and Debentures) Rules 2014.
Get DPIIT recognition — the gateway to the startup tax exemptions.
FAQ
Frequently asked questions
Is angel tax still applicable to share issues in 2025-26?
Do earlier years' angel tax assessments remain open?
What was the angel tax rate under Section 56(2)(viib)?
Which startups were exempt from angel tax?
How is fair market value computed under Rule 11UA?
We received a notice for a pre-2025 round — what happens now?
Canonical reference: https://www.pvtltd.co/services/angel-tax-exemption
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