“Angel tax” - Section 56(2)(viib), taxing an unlisted company on share premium received above fair value as income - used to come with a specific, narrow escape route: DPIIT-registered startups meeting certain conditions could apply for an exemption, and investors had to fit defined categories to qualify their investment for it. Anyone outside that narrow lane, founder or investor, was exposed.
The Provision Was Removed, Not Widened
Announced in the July 2024 budget and effective from 1 April 2025, the provision was made inapplicable outright - not expanded, not carved out further, removed. Any unlisted Indian company can now issue shares at any premium, to any investor, resident or foreign, without triggering the tax that Section 56(2)(viib) used to impose on the excess. The DPIIT registration route that founders used to navigate isn’t a workaround anymore, because there’s nothing left to work around.
Earlier Issuances Are Not Retroactively Cleared
The one caveat is timing, not scope: the withdrawal applies going forward from the 2025-26 assessment year. Share issuances that took place before 1 April 2025 remain subject to whatever angel tax exposure existed at the time, and assessments already open for those earlier years aren’t retroactively cleared by the provision’s removal.
For anyone still structuring a fundraise around DPIIT registration or investor-category eligibility specifically to sidestep angel tax, that structuring is now solving a problem that no longer exists for any issuance from April 2025 onward - the compliance the exemption used to require has simply become unnecessary, not easier.
Stop structuring fundraises around DPIIT registration or investor-category eligibility for angel-tax purposes. For any issuance from April 2025 the compliance solves a problem that no longer exists - though assessments already open for earlier years still stand.
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