Quick Summary
Angel Tax (Section 56(2)(viib)) taxes excess premium received by unlisted companies from Indian residents. DPIIT-recognized startups are exempt.
Angel Tax refers to income tax payable on the consideration received by unlisted companies from Indian residents, when the consideration exceeds the fair market value of shares.
When Does It Apply
- Resident investor invests in unlisted company
- Investment is at premium to fair market value
- Company is not a DPIIT-recognized startup
- Does not apply to non-resident investors
Tax Rate
Excess amount over fair market value is treated as "Income from Other Sources" and taxed at 30% (plus surcharge and cess).
Exemptions
- DPIIT-recognized startups (as per notification)
- Investments from non-residents
- Investments from listed companies
- Investments from AIFs (Category I and II)
- Investments up to ₹25 crore in case of DPIIT startups
Fair Market Value Calculation
FMV is determined by: Net Asset Value method or Discounted Cash Flow method by Category I Merchant Banker.
Key Points
- 30% tax on excess premium
- Applies to resident investors
- DPIIT startups exempt
- Fair market value calculation required
- Does not apply to foreign investors
- Section 56(2)(viib) of IT Act