India announced the abolition of “angel tax” for all classes of investors in its 2024–25 Union Budget, presented on 23 July 2024. The Income Tax Department says the former provision, Section 56(2)(viib), is not applicable from Assessment Year 2025–26. That removes the provision going forward from that assessment year; it does not, by itself, resolve every earlier assessment or dispute.
What was angel tax in India?
“Angel tax” was the common name for Section 56(2)(viib) of India’s Income Tax Act. Under the former provision, a closely held company could face tax when it issued shares for consideration greater than both their face value and fair market value. The amount above fair market value could be taxable as income in the hands of the issuing company, rather than as tax on the investor’s investment gain. The Income Tax Department describes the former mechanism on its Section 56 overview and statutory Section 56 page.
The rules had included an exemption for qualifying startups subject to conditions prescribed by the Department for Promotion of Industry and Internal Trade (DPIIT). DPIIT recognition alone should not be taken as proof that every historical share issue met all applicable exemption conditions.
When was angel tax abolished, and from when does it apply?
Finance Minister Nirmala Sitharaman proposed abolishing the tax while presenting the Union Budget 2024–25 on 23 July 2024. The Press Information Bureau’s announcement said the change covered “all classes of investors.” The Income Tax Department’s current startup-tax page separately states that Section 56(2)(viib) is not applicable from Assessment Year 2025–26. These are distinct points: the budget announcement set out the policy, while the department’s page states the assessment-year applicability. Read the PIB announcement and the department’s startup-tax explanation.
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What changes for startups and investors?
For share issues falling within the stated applicability, the former Section 56(2)(viib) charge no longer applies from AY 2025–26. The announcement’s coverage of all investor classes means the repeal was not limited to a particular category of investor. The government described the change as intended to bolster the startup ecosystem, encourage entrepreneurship, and support innovation. Those are stated policy aims, not evidence that investment or startup outcomes have already improved; the cited official announcement does not give a measured impact figure.
Does the repeal settle earlier notices or disputes?
Not necessarily. The Income Tax Department’s page gives the AY 2025–26 applicability note, while the official statutory page presents the former clause; neither comprehensively explains how every earlier assessment, notice, or pending dispute should be treated. A company facing a pre-AY 2025–26 question should not assume that abolition automatically cancels a notice or decides its case. The outcome may depend on the relevant assessment year, share issue, records, and procedural status. For a specific legacy matter, seek advice from a qualified Indian tax professional rather than relying on the general repeal announcement.
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