Angel Tax

Table of Contents☰

About Angel Tax:

It was levied on the capital raised via the issue of shares by unlisted companies from an Indian investor if the share price of issued shares is seen in excess of the fair market value of the company.
- The excess funds raised at prices above fair value are treated as income, on which tax is levied.
It derives its genesis from section 56(2) (viib) of the Income Tax Act, 1961.
It was first introduced in 2012 to prevent black money laundering through share sales.
It was levied at a rate of 30.9% on net investments in excess of the fair market value.
In 2019, the Government announced an exemption from the Angel Tax for startups on fulfillment of certain conditions. These are,
- The startup should be recognized by the Department for Promotion of Industry and Internal Trade (DPIIT) as an eligible startup.
- The aggregate amount of paid-up share capital and share premium of the Startup cannot be more than ₹25 crores. This amount does not include the money raised from Non-Resident Indians (NRIs), Venture Capital Firms, and specified companies.
For angel investors, the amount of investment that exceeds the fair market value can be claimed for a 100% tax exemption.
However, the investor must have a net worth of ₹2 crores or an income of more than ₹25 Lakh in the past 3 fiscal years.

Q1: What are venture capital funds?

Venture capital funds are pooled investment funds that manage the money of investors who seek private equity stakes in startups and small- to medium-sized enterprises with strong growth potential. These investments are generally characterized as very high-risk/high-return opportunities.

Source: ANGEL TAX’ ABOLISHED FOR ALL CLASSES OF INVESTORS