{"id":566,"date":"2024-08-22T17:09:22","date_gmt":"2024-08-22T11:39:22","guid":{"rendered":"https:\/\/www.caclubindia.com\/guide\/?p=566"},"modified":"2025-06-26T15:57:03","modified_gmt":"2025-06-26T10:27:03","slug":"angel-tax","status":"publish","type":"post","link":"https:\/\/www.caclubindia.com\/guide\/angel-tax\/","title":{"rendered":"Angel Tax: Impact on Funding Startup in India"},"content":{"rendered":"\n<p>Angel tax is levied on unlisted companies who have to pay on the capital they raise through issue of shares.<\/p>\n\n\n\n<p>Section 56(2)(viib) of the Income Tax Act, 1961, deals with the concept of \u201cAngel Tax\u201d where funds raised by the start-ups are taxed if they exceed the fair market value of the company.<\/p>\n\n\n\n<figure class=\"wp-block-image\"><img decoding=\"async\" src=\"https:\/\/www.caclubindia.com\/guide\/wp-content\/uploads\/2024\/08\/angeltax-1024x538.jpg\" alt=\"image\" title=\"angel tax\"\/><\/figure>\n\n\n\n<div id=\"ez-toc-container\" class=\"ez-toc-v2_0_82_2 counter-hierarchy ez-toc-counter ez-toc-light-blue ez-toc-container-direction\">\r\n<div class=\"ez-toc-title-container\">\r\n<p class=\"ez-toc-title\" style=\"cursor:inherit\">Table of Contents<\/p>\r\n<span class=\"ez-toc-title-toggle\"><a href=\"#\" class=\"ez-toc-pull-right ez-toc-btn ez-toc-btn-xs ez-toc-btn-default ez-toc-toggle\" aria-label=\"Toggle Table of Content\"><span class=\"ez-toc-js-icon-con\"><span class=\"\"><span class=\"eztoc-hide\" style=\"display:none;\">Toggle<\/span><span class=\"ez-toc-icon-toggle-span\"><svg style=\"fill: #999;color:#999\" xmlns=\"http:\/\/www.w3.org\/2000\/svg\" class=\"list-377408\" width=\"20px\" height=\"20px\" viewBox=\"0 0 24 24\" fill=\"none\"><path d=\"M6 6H4v2h2V6zm14 0H8v2h12V6zM4 11h2v2H4v-2zm16 0H8v2h12v-2zM4 16h2v2H4v-2zm16 0H8v2h12v-2z\" fill=\"currentColor\"><\/path><\/svg><svg style=\"fill: #999;color:#999\" class=\"arrow-unsorted-368013\" xmlns=\"http:\/\/www.w3.org\/2000\/svg\" width=\"10px\" height=\"10px\" viewBox=\"0 0 24 24\" version=\"1.2\" baseProfile=\"tiny\"><path d=\"M18.2 9.3l-6.2-6.3-6.2 6.3c-.2.2-.3.4-.3.7s.1.5.3.7c.2.2.4.3.7.3h11c.3 0 .5-.1.7-.3.2-.2.3-.5.3-.7s-.1-.5-.3-.7zM5.8 14.7l6.2 6.3 6.2-6.3c.2-.2.3-.5.3-.7s-.1-.5-.3-.7c-.2-.2-.4-.3-.7-.3h-11c-.3 0-.5.1-.7.3-.2.2-.3.5-.3.7s.1.5.3.7z\"\/><\/svg><\/span><\/span><\/span><\/a><\/span><\/div>\r\n<nav><ul class='ez-toc-list ez-toc-list-level-1 ' ><li class='ez-toc-page-1 ez-toc-heading-level-2'><a class=\"ez-toc-link ez-toc-heading-1\" href=\"https:\/\/www.caclubindia.com\/guide\/angel-tax\/#Rate_of_Angel_Tax\" >Rate of Angel Tax<\/a><\/li><li class='ez-toc-page-1 ez-toc-heading-level-2'><a class=\"ez-toc-link ez-toc-heading-2\" href=\"https:\/\/www.caclubindia.com\/guide\/angel-tax\/#Applicability\" >Applicability<\/a><\/li><li class='ez-toc-page-1 ez-toc-heading-level-2'><a class=\"ez-toc-link ez-toc-heading-3\" href=\"https:\/\/www.caclubindia.com\/guide\/angel-tax\/#Why_Angel_Tax_was_introduced_in_India\" >Why Angel Tax was introduced in India?<\/a><\/li><li class='ez-toc-page-1 ez-toc-heading-level-2'><a class=\"ez-toc-link ez-toc-heading-4\" href=\"https:\/\/www.caclubindia.com\/guide\/angel-tax\/#Important_Update\" >Important Update<\/a><\/li><li class='ez-toc-page-1 ez-toc-heading-level-2'><a class=\"ez-toc-link ez-toc-heading-5\" href=\"https:\/\/www.caclubindia.com\/guide\/angel-tax\/#Impact_On_Abolish_Angel_Tax\" >Impact On Abolish Angel Tax<\/a><\/li><li class='ez-toc-page-1 ez-toc-heading-level-2'><a class=\"ez-toc-link ez-toc-heading-6\" href=\"https:\/\/www.caclubindia.com\/guide\/angel-tax\/#Exemptions_Announced_in_2019_for_Start-ups\" >Exemptions Announced in 2019 for Start-ups<\/a><ul class='ez-toc-list-level-3' ><li class='ez-toc-heading-level-3'><a class=\"ez-toc-link ez-toc-heading-7\" href=\"https:\/\/www.caclubindia.com\/guide\/angel-tax\/#Capital_Limit\" >Capital Limit<\/a><\/li><li class='ez-toc-page-1 ez-toc-heading-level-3'><a class=\"ez-toc-link ez-toc-heading-8\" href=\"https:\/\/www.caclubindia.com\/guide\/angel-tax\/#Angel_Investors\" >Angel Investors<\/a><\/li><li class='ez-toc-page-1 ez-toc-heading-level-3'><a class=\"ez-toc-link ez-toc-heading-9\" href=\"https:\/\/www.caclubindia.com\/guide\/angel-tax\/#Eligible_Start-ups\" >Eligible Start-ups<\/a><\/li><\/ul><\/li><li class='ez-toc-page-1 ez-toc-heading-level-2'><a class=\"ez-toc-link ez-toc-heading-10\" href=\"https:\/\/www.caclubindia.com\/guide\/angel-tax\/#How_To_Calculate\" >How To Calculate?<\/a><\/li><li class='ez-toc-page-1 ez-toc-heading-level-2'><a class=\"ez-toc-link ez-toc-heading-11\" href=\"https:\/\/www.caclubindia.com\/guide\/angel-tax\/#FAQs\" >FAQs<\/a><\/li><\/ul><\/nav><\/div>\r\n<h2 class=\"wp-block-heading\"><span class=\"ez-toc-section\" id=\"Rate_of_Angel_Tax\"><\/span>Rate of Angel Tax<span class=\"ez-toc-section-end\"><\/span><\/h2>\n\n\n\n<p>Angel tax is an income tax levied at a rate of 30.9%.<\/p>\n\n\n\n<h2 class=\"wp-block-heading\"><span class=\"ez-toc-section\" id=\"Applicability\"><\/span>Applicability<span class=\"ez-toc-section-end\"><\/span><\/h2>\n\n\n\n<p>Angel tax was applicable only to investments made by resident investors.<\/p>\n\n\n\n<p>In the Finance Act 2023 extended this provision to include foreign investors.<\/p>\n\n\n\n<p>DPIIT recognized start-ups are now excluded from paying this tax with certain conditions.<\/p>\n\n\n\n<h2 class=\"wp-block-heading\"><span class=\"ez-toc-section\" id=\"Why_Angel_Tax_was_introduced_in_India\"><\/span>Why Angel Tax was introduced in India?<span class=\"ez-toc-section-end\"><\/span><\/h2>\n\n\n\n<p>This tax was introduced through the Finance Act, 2012 to curb tax avoidance, money laundering and the circulation of black money under the guise of investment in start-ups.<\/p>\n\n\n\n<h2 class=\"wp-block-heading\"><span class=\"ez-toc-section\" id=\"Important_Update\"><\/span>Important Update<span class=\"ez-toc-section-end\"><\/span><\/h2>\n\n\n\n<p>The Finance Minister while presenting union budget 2024-25 said that for all classes of investors proposed to abolish the <strong><a href=\"https:\/\/www.caclubindia.com\/articles\/angel-tax-controversy-comprehensive-overview-52380.asp\">angel tax<\/a><\/strong>.<\/p>\n\n\n\n<h2 class=\"wp-block-heading\"><span class=\"ez-toc-section\" id=\"Impact_On_Abolish_Angel_Tax\"><\/span>Impact On Abolish Angel Tax<span class=\"ez-toc-section-end\"><\/span><\/h2>\n\n\n\n<ul class=\"wp-block-list\">\n<li>Encourage start-up growth<\/li>\n<\/ul>\n\n\n\n<ul class=\"wp-block-list\">\n<li>Address investor concerns<\/li>\n<\/ul>\n\n\n\n<ul class=\"wp-block-list\">\n<li>Promote ease doing business<\/li>\n<\/ul>\n\n\n\n<ul class=\"wp-block-list\">\n<li>Prevent unintended consequences<\/li>\n<\/ul>\n\n\n\n<ul class=\"wp-block-list\">\n<li>Feedback from the start-up community<\/li>\n<\/ul>\n\n\n\n<h2 class=\"wp-block-heading\"><span class=\"ez-toc-section\" id=\"Exemptions_Announced_in_2019_for_Start-ups\"><\/span>Exemptions Announced in 2019 for Start-ups<span class=\"ez-toc-section-end\"><\/span><\/h2>\n\n\n\n<h3 class=\"wp-block-heading\"><span class=\"ez-toc-section\" id=\"Capital_Limit\"><\/span>Capital Limit<span class=\"ez-toc-section-end\"><\/span><\/h3>\n\n\n\n<p>The aggregate amount of paid-up share capital and share premium of start-up cannot be excess of Rs. 25 crores. This amount does not include money raised from Non Resident Indians, Venture Capital Firms and specified companies.<\/p>\n\n\n\n<h3 class=\"wp-block-heading\"><span class=\"ez-toc-section\" id=\"Angel_Investors\"><\/span>Angel Investors<span class=\"ez-toc-section-end\"><\/span><\/h3>\n\n\n\n<p>For angel investors, the amount of investment when exceeds the fair market value will able to claim 100% tax exemption. The investors must have a net worth of Rs. 2 crores or income of above Rs. 25 lakh in the past three fiscal years.<\/p>\n\n\n\n<h3 class=\"wp-block-heading\"><span class=\"ez-toc-section\" id=\"Eligible_Start-ups\"><\/span>Eligible Start-ups<span class=\"ez-toc-section-end\"><\/span><\/h3>\n\n\n\n<p>Start-ups should be recognize by the Department for Promotion of Industry and Internal Trade as eligible start-ups.<\/p>\n\n\n\n<h2 class=\"wp-block-heading\"><span class=\"ez-toc-section\" id=\"How_To_Calculate\"><\/span>How To Calculate?<span class=\"ez-toc-section-end\"><\/span><\/h2>\n\n\n\n<p><strong>Let us taken an example to know how to calculate in detailed.<\/strong><\/p>\n\n\n\n<p>Anant\u2019s start-ups attracted an investment of Rs 40 crore. He issued 1 lakh shares to an Indian investor at Rs 4,000 per share. However, the fair market value of each share is only Rs 2,000 i.e., FMV of the shares totals Rs 20 crore.<\/p>\n\n\n\n<p><strong>Solution<\/strong><\/p>\n\n\n\n<p>As Anant\u2019s start-up received Rs 40 crore where the fair market value was Rs 20 crore, the difference of Rs 20 crore is excess.<\/p>\n\n\n\n<p>Under Section 56(2)(viib) of the Income Tax Act, Rs 20 crore is treated as income and is subject to &#8220;angel tax.&#8221;<\/p>\n\n\n\n<p>The tax rate is <strong>30.9%<\/strong> which means Anant&#8217;s start-ups would owe Rs 6.18 crore in tax on this excess amount.<\/p>\n\n\n\n<h2 class=\"wp-block-heading\"><span class=\"ez-toc-section\" id=\"FAQs\"><\/span>FAQs<span class=\"ez-toc-section-end\"><\/span><\/h2>\n\n\n\n<div class=\"schema-faq wp-block-yoast-faq-block\"><div class=\"schema-faq-section\" id=\"faq-question-1724325794213\"><strong class=\"schema-faq-question\">Who are angel investors?<\/strong> <p class=\"schema-faq-answer\">Angel investors are usually a high net worth individuals who funds start-ups at the early stages, often with their own money.<\/p> <\/div> <div class=\"schema-faq-section\" id=\"faq-question-1724325809598\"><strong class=\"schema-faq-question\">Who introduced angel tax?<\/strong> <p class=\"schema-faq-answer\">This tax was introduced in Finance Act 2012 by Finance Minister Pranab Mukherjee.<\/p> <\/div> <div class=\"schema-faq-section\" id=\"faq-question-1724325820957\"><strong class=\"schema-faq-question\">Who is eligible for angel investor?<\/strong> <p class=\"schema-faq-answer\">To qualify as an eligible angel investor in India, individual investor must: <br\/>(i) have net tangible assets minimum of INR 2 crore or <br\/>(ii) be an Alternative Investment Fund under SEBI AIF Regulations, 2012, or <br\/>(iii) a Venture Capital Fund under SEBI VCF Regulations, 1996.<\/p> <\/div> <\/div>\n","protected":false},"excerpt":{"rendered":"<p>Angel tax is levied on unlisted companies who have to pay on the capital they raise through issue of shares. [&hellip;]<\/p>\n","protected":false},"author":5,"featured_media":567,"comment_status":"open","ping_status":"closed","sticky":false,"template":"","format":"standard","meta":{"site-sidebar-layout":"default","site-content-layout":"","ast-site-content-layout":"","site-content-style":"default","site-sidebar-style":"default","ast-global-header-display":"","ast-banner-title-visibility":"","ast-main-header-display":"","ast-hfb-above-header-display":"","ast-hfb-below-header-display":"","ast-hfb-mobile-header-display":"","site-post-title":"","ast-breadcrumbs-content":"","ast-featured-img":"","footer-sml-layout":"","theme-transparent-header-meta":"","adv-header-id-meta":"","stick-header-meta":"","header-above-stick-meta":"","header-main-stick-meta":"","header-below-stick-meta":"","astra-migrate-meta-layouts":"default","ast-page-background-enabled":"default","ast-page-background-meta":{"desktop":{"background-color":"var(--ast-global-color-4)","background-image":"","background-repeat":"repeat","background-position":"center center","background-size":"auto","background-attachment":"scroll","background-type":"","background-media":"","overlay-type":"","overlay-color":"","overlay-opacity":"","overlay-gradient":""},"tablet":{"background-color":"","background-image":"","background-repeat":"repeat","background-position":"center center","background-size":"auto","background-attachment":"scroll","background-type":"","background-media":"","overlay-type":"","overlay-color":"","overlay-opacity":"","overlay-gradient":""},"mobile":{"background-color":"","background-image":"","background-repeat":"repeat","background-position":"center center","background-size":"auto","background-attachment":"scroll","background-type":"","background-media":"","overlay-type":"","overlay-color":"","overlay-opacity":"","overlay-gradient":""}},"ast-content-background-meta":{"desktop":{"background-color":"var(--ast-global-color-5)","background-image":"","background-repeat":"repeat","background-position":"center center","background-size":"auto","background-attachment":"scroll","background-type":"","background-media":"","overlay-type":"","overlay-color":"","overlay-opacity":"","overlay-gradient":""},"tablet":{"background-color":"var(--ast-global-color-5)","background-image":"","background-repeat":"repeat","background-position":"center center","background-size":"auto","background-attachment":"scroll","background-type":"","background-media":"","overlay-type":"","overlay-color":"","overlay-opacity":"","overlay-gradient":""},"mobile":{"background-color":"var(--ast-global-color-5)","background-image":"","background-repeat":"repeat","background-position":"center center","background-size":"auto","background-attachment":"scroll","background-type":"","background-media":"","overlay-type":"","overlay-color":"","overlay-opacity":"","overlay-gradient":""}},"footnotes":""},"categories":[4],"tags":[],"class_list":["post-566","post","type-post","status-publish","format-standard","has-post-thumbnail","hentry","category-income-tax"],"yoast_head":"<!-- This site is optimized with the Yoast SEO plugin v27.4 - https:\/\/yoast.com\/product\/yoast-seo-wordpress\/ -->\r\n<title>Angel Tax: Impact on Funding Startup in India - Tax Guide<\/title>\r\n<meta name=\"description\" content=\"Angel Tax are levied on startups in India when they receive funding from an investor. 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