What Angel Tax was
Under Section 56(2)(viib), when an unlisted company issued shares above fair market value, the excess premium could be taxed as “income from other sources”. For startups raising at a high valuation on the back of vision rather than current financials, this created painful tax notices.
The exemption that fixed it
DPIIT-recognised startups can claim exemption by filing the prescribed declaration, provided they meet conditions on aggregate paid-up capital and the type of investor.
Conditions to keep the exemption clean
- Be DPIIT-recognised and file the required declaration
- Keep aggregate paid-up share capital and premium within the notified ceiling
- Avoid prohibited uses of funds (e.g., loans/advances unrelated to business, certain asset purchases)
Angel Tax is far less scary today — but only if your recognition and declarations are in order before you raise.
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