Angel Tax

September 28, 2023

The Centre govt. recently notified the Angel Tax rules for valuation of equity and compulsorily convertible preferable shares issued by startups to resident and non-resident investors.
In a bid to curb overvaluation and maintain transparency in capital transactions, unlisted companies issuing shares at a price exceeding their fair market value will be subject to Angel Tax at 30.6%.

Angel tax is levied when an unlisted company issue shares to an investor at a price higher than its fair market value.

While earlier only investments made by a resident investor used to attract angel tax, the Budget for 2023-24 widened its ambit to include non-resident investors
As per the Budget, the excess premium will be considered as ‘income from sources’ and taxed at the rate of up to over 30 per cent.
- However, startups registered by the DPIIT (Department for promotion of industry and internal trade) are exempt from the new norms.
The Income-tax (Twenty first Amendment), Rules, 2023 modify rule 11UA specify that the fair value of the shares will be as determined by the methods provided.
- Rule 11UA is concerned with the valuation of shares for the purpose of levying Angel Tax.