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Angel Tax and Section 56(2)(viib)

Reviewed by CA and CS Team, Patron Accounting LLP ICAI & ICSI Registered| 15+ Years Experience| Last Updated: Verify Credentials →

Status: Section 56(2)(viib) abolished from FY 2025-26 for all investors.

Fees: Angel tax advisory and notice defence starting from INR 9,999 (Exl GST and Govt. Charges).

New raises: no angel tax, no Form 2, no DPIIT exemption needed.

Legacy: we defend assessments for AY 2024-25 and prior years.

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Angel Tax in 2026: Overview

📌 TL;DR - Angel Tax Advisory Services at a Glance

Angel tax under Section 56(2)(viib) taxed share premium above fair market value in the hands of unlisted companies. It was abolished by the Finance (No. 2) Act, 2024 from FY 2025-26 for all investors, so new raises need no exemption, Form 2 or DPIIT application. Only legacy assessments for AY 2024-25 and earlier remain. Patron Accounting advises and defends from INR 9,999.

Parameter	Detail
What it was	Tax on share premium above FMV under Section 56(2)(viib)
Status	Abolished from FY 2025-26 (1 April 2025), all investors
Abolished by	Finance (No. 2) Act, 2024; not reintroduced in IT Act 2025
New raises	Fully exempt; no Form 2 or DPIIT exemption needed
Legacy	AY 2024-25 and prior assessments remain open
Cost	Angel tax advisory and defence from INR 9,999 (Exl GST and Govt. Charges)
Valuation	Rule 11UA still applies for FEMA and other tax purposes

If you raised funds before 1 April 2025 at a premium and receive a notice, it still needs a proper response. Legacy notice defence is fact-specific and scoped per case.

Content is reviewed quarterly for accuracy.

What Was Angel Tax under Section 56(2)(viib)?

Angel tax was a tax on the share premium an unlisted company received above the fair market value of its shares when raising capital, treated as income from other sources and taxed in the company's hands. It was introduced in 2012 under Section 56(2)(viib) of the Income Tax Act, 1961.

If a company issued shares at a price above the FMV determined under Rule 11UA, the excess was taxed at around 30% plus cess. It caused frequent valuation disputes, which is why DPIIT-recognised startups could earlier claim an exemption, and why the provision was ultimately abolished from FY 2025-26.

Key Terms for Angel Tax Advisory:

Section 56(2)(viib): the now-abolished angel tax provision on share premium above FMV.
FMV: fair market value of the shares, determined under Rule 11UA (NAV or DCF).
Rule 11UA: the valuation rule, which still applies for FEMA and other tax purposes.
Legacy assessment: an angel tax notice or assessment for AY 2024-25 or an earlier year.

Abolished FY 2025-26

Does Angel Tax Affect You?

If you are raising funds now (from 1 April 2025), angel tax does not apply at all. You can issue shares at any premium without an angel tax liability, and you do not need a DPIIT exemption, a Form 2 declaration or a merchant-banker valuation specifically for angel tax. The concern is simply gone.

If you raised funds before 1 April 2025 at a premium above FMV, an Assessing Officer can still issue a notice for that earlier year within the time limits, and that assessment needs a proper, well-documented defence. This legacy exposure is where professional help still matters.

Our Angel Tax Services

Service	What We Do
Fundraise check	Confirming your current round is clean post-abolition and structured correctly.
Legacy notice defence	Responding to and defending angel tax notices for AY 2024-25 and prior years.
Rule 11UA valuation	Share valuation for FEMA pricing, Section 56(2)(x) and other purposes.
Documentation	Contemporaneous valuation and investor documentation to support past rounds.
Assessment representation	Representation before the Assessing Officer and at appeal.
DPIIT and startup advisory	Linking to recognition and the live Section 80-IAC benefits.

Our Process

How We Handle Angel Tax: 6 Steps

Whether you are planning a fresh raise or facing a legacy notice, here is how Patron Accounting fixes your position and defends past-year exposure where it arises.

Step 1

Establish the timeline

Identify whether the relevant fundraise is before or after 1 April 2025 to fix the legal position.

Date fixed Position set

Timeline Established 01

Step 2

For new raises, confirm clean status

Confirm no angel tax applies and document the round correctly.

No angel tax Round documented

Clean Confirmed 02

Step 3

For legacy, review the notice

Examine the notice, the year, and the valuation and investor records for the past round.

Notice reviewed Records examined

Notice Reviewed 03

Step 4

Prepare the valuation

Reconstruct or support the Rule 11UA valuation and the basis for the premium.

Valuation prepared Premium supported

Valuation Ready 04

Step 5

Respond and represent

File the response and represent the company before the Assessing Officer.

Response filed AO represented

Represented 05

Step 6

Escalate if needed

Take the matter to appeal where the assessment is not resolved favourably.

Appeal filed Matter escalated

Escalated 06

Documents Required (Legacy Assessment)

The angel tax notice: and assessment details for the relevant year.
Share issue records: board and shareholder resolutions, share certificates, returns of allotment.
Valuation report: supporting the FMV under Rule 11UA at the time of issue.
Investor documentation: and proof of receipt of funds.
Financial statements: for the relevant years.

Common Challenges and How We Solve Them

Challenge	Impact	How Patron Accounting Solves It
Confusion about whether angel tax still applies	The law changed mid-stream	We fix the position by fundraise date clearly
Legacy notice for a pre-2025 round	Old years remain assessable	We prepare the valuation defence and represent you
Missing or weak valuation records	Thin records undermine the defence	We reconstruct Rule 11UA support for the round
Valuation still needed for FEMA	Rule 11UA continues to apply	We provide the required Rule 11UA valuation

Angel Tax Service Fees

Fee Component	Amount
Patron Accounting Professional Fees	Starting from INR 9,999 (Exl GST and Govt. Charges)
Notice review and Rule 11UA valuation support	Included in the advisory and defence scope
Complex multi-year assessments and appeals	Scoped and quoted on the facts
Standalone valuation reports	Quoted per engagement

All fees and charges listed are indicative only and do not constitute a binding offer. Final amounts may vary depending on the volume of work and the complexity involved.

Professional service charges for drafting, filing, and representation are separate from the statutory fees. The exact fee depends on the complexity of the case, disputed amount, and number of hearings required. Contact us for a detailed quote.

Get a free Angel Tax Advisory consultation - Call +91 945 945 6700 or WhatsApp us. No-obligation assessment.

How Long Does It Take?

Stage	Estimated Timeline
Confirming a current fundraise is clean	Often within a day or two
Defending a legacy assessment	Several weeks to months, per the notice and appeal
Response to a notice	We move quickly to meet the deadline

Defending a legacy assessment depends on the notice and the year, and runs to the timelines of the assessment and any appeal. We move quickly to meet the response deadline on any notice.

Key Benefits

Why This Still Matters

Clarity on new raises

Confidence that no angel tax applies to fundraises from 1 April 2025.

Legacy protection

A documented defence of past-year assessments for AY 2024-25 and prior.

Compliant valuation

Rule 11UA valuation where it is still required for FEMA and other purposes.

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Angel Tax: Before vs Now

Aspect	Before (up to FY 2024-25)	Now (FY 2025-26 onwards)
Section 56(2)(viib)	Applied to premium above FMV	Abolished
New fundraise	Taxable unless exempt	Fully exempt, any premium
DPIIT exemption / Form 2	Needed to claim relief	Not needed
Investor scope	Resident and (from 2023) non-resident	Not applicable
Legacy assessments	Open	Still open for AY 2024-25 and prior

Related Services

Angel tax sits within startup taxation, so pair this with startup (DPIIT) registration for the still-live Section 80-IAC tax holiday and ESOP deferral, and ESOP management and compliance services. For valuation, see our actuarial valuation services. New entity? See private limited company registration and the post-incorporation PAN registration and TAN registration.

Legal and Compliance Framework

Section 56(2)(viib) and its abolition: angel tax was levied under Section 56(2)(viib) of the Income Tax Act, 1961 on share premium received by an unlisted company above the fair market value of its shares; it was abolished by the Finance (No. 2) Act, 2024 with effect from assessment year 2025-26 (announced via the PIB in Budget 2024).

All investors and the new Act: the abolition applies to all classes of investors, resident and non-resident, and the Income Tax Act 2025 does not reintroduce an equivalent provision, so the relief continues from AY 2026-27 (per the Income Tax Department).

Legacy assessments: for fundraises before 1 April 2025, Assessing Officers can still examine the share premium against FMV for the relevant assessment year within the statutory time limits, so contemporaneous valuation and documentation remain important for past rounds.

Rule 11UA and anti-avoidance: the Rule 11UA valuation methods (NAV and DCF) continue to apply for purposes such as FEMA pricing and Section 56(2)(x), and general anti-avoidance provisions such as GAAR and Section 68 continue to apply to share capital and premium. DPIIT recognition and its other benefits are on the Startup India portal.

Frequently Asked Questions

Common questions about angel tax, the abolition of Section 56(2)(viib), DPIIT exemption, legacy notices and Rule 11UA valuation.

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Is angel tax still applicable in India?

No. Angel tax under Section 56(2)(viib) of the Income Tax Act was abolished by the Finance (No. 2) Act, 2024 with effect from FY 2025-26, that is from 1 April 2025. For any share issue from that date, there is no angel tax, regardless of the premium or the type of investor. The Income Tax Act 2025 also does not reintroduce the provision, so the relief continues going forward.

What was Section 56(2)(viib) angel tax?

Section 56(2)(viib) was the provision, introduced in 2012, that taxed the share premium an unlisted company received above the fair market value of its shares when raising capital. The excess of the issue price over FMV was treated as income from other sources and taxed in the company's hands at around 30% plus cess. Fair market value was determined under Rule 11UA using the net asset value or discounted cash flow method.

When was angel tax abolished?

Angel tax was abolished through the Finance (No. 2) Act, 2024, which provided that Section 56(2)(viib) would not apply from assessment year 2025-26 onwards, corresponding to financial year 2025-26 and share issues from 1 April 2025. The decision was announced in the Union Budget 2024 to ease startup fundraising and reduce valuation disputes, and it applies to all classes of investors.

Do startups still need a DPIIT angel tax exemption?

No. Because angel tax has been abolished for new fundraises, DPIIT-recognised startups no longer need to file a Form 2 declaration or claim a separate angel tax exemption for raises from 1 April 2025. There is simply no angel tax to be exempted from. DPIIT recognition, however, remains very valuable for other benefits such as the Section 80-IAC tax holiday, ESOP tax deferral and IPR rebates.

Can I still get an angel tax notice for past years?

Yes. The abolition applies from FY 2025-26, but assessments for AY 2024-25 and earlier years remain open. If your company raised funds before 1 April 2025 at a premium above fair market value, an Assessing Officer can still issue a notice for that earlier year within the applicable time limits. Such a notice must be answered with a proper valuation-backed defence, which is the live area where we help.

How was angel tax FMV calculated under Rule 11UA?

Under Rule 11UA, the fair market value of unquoted equity shares was determined using either the net asset value method, broadly the net assets of the company divided by the number of shares, or the discounted cash flow method, the present value of projected future cash flows certified by a merchant banker. The premium charged above this FMV was what attracted angel tax. These valuation methods still apply for other tax and FEMA purposes.

Does angel tax apply to foreign investors?

It no longer applies to anyone. Historically, angel tax applied to investments by resident investors, and the Finance Act 2023 had extended it to non-resident investors, which caused concern in the FDI community. With the abolition of Section 56(2)(viib) from FY 2025-26, angel tax does not apply to any investor, whether resident, non-resident, venture fund or otherwise, for fundraises from 1 April 2025.

Kya angel tax abhi bhi lagta hai?

Nahi - Section 56(2)(viib) FY 2025-26 se abolish ho gaya, naye fund raise par koi angel tax nahi. Sirf 1 April 2025 se pehle ke saalon ke purane notice defend karne padte hain. Patron Accounting usme madad karta hai.

Quick Answers

Still applicable? No; abolished from FY 2025-26.
Abolished by? Finance (No. 2) Act, 2024.
DPIIT exemption needed? No, for new raises; no Form 2.
Legacy notices? Yes; AY 2024-25 and prior remain open.

Got an Angel Tax Notice or Planning a Raise?

Even though angel tax is abolished for new raises, two things still need attention: defending past-year exposure, and the valuation that continues to apply for FEMA and other tax provisions. Getting both right protects past rounds and keeps future raises clean.

Call +91 945 945 6700 or message us on WhatsApp for a clear read on where you stand under the post-abolition law.

Get Clarity on Your Angel Tax Position

Angel tax under Section 56(2)(viib) is no longer a hurdle for Indian startups: it was abolished by the Finance (No. 2) Act, 2024 from FY 2025-26 for all investors, and the new Income Tax Act 2025 does not bring it back. New fundraises need no exemption, Form 2 or DPIIT application.

The two areas that still need care are defending legacy assessments for AY 2024-25 and earlier, and the Rule 11UA valuation that continues to apply for FEMA and other purposes. Patron Accounting, with 15+ years of experience and a CA and CS team, gives you a clear read on your position and defends past-year exposure where it arises.

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Content Created: 3 June 2026 | Last Updated: | Next Review: 3 December 2026 | Reviewed By: CA & CS Team, Patron Accounting LLP

This page is reviewed every 6 months or whenever the Income Tax Act, court rulings on legacy angel tax, or the Rule 11UA valuation provisions change, so the angel tax guidance stays current.