What changed
- “Angel tax” — section 56(2)(viib) of the 1961 Act — taxed a closely held company on share premium received above fair market value.
- The Finance (No. 2) Act 2024 switched it off for all classes of investors from assessment year 2025-26 onwards.
- The Income-tax Act, 2025, in force from 1 April 2026, has no equivalent provision.
What still applies
- FEMA pricing: shares issued to a non-resident must be priced at not less than fair value, worked out by an internationally accepted pricing method and certified by a chartered accountant, SEBI-registered merchant banker or practising cost accountant — and reported in FC-GPR within 30 days.
- Source of funds: the tax department can still ask a company to explain the source of money it receives.
- Companies Act: preferential allotments still need a registered valuer’s report where required.
- Investor diligence: a defensible valuation report protects you in the next round — see valuation services.
Older years
Rounds raised in earlier years remain open to assessment under the law as it stood then — keep the valuation reports and board papers from those rounds.
Frequently asked questions
Has angel tax been abolished in India?
Yes. Section 56(2)(viib) was switched off for all classes of investors from assessment year 2025-26 by the Finance (No. 2) Act 2024, and the Income-tax Act 2025 has no equivalent provision.
Do startups still need a valuation when raising from foreign investors?
Yes. Under FEMA, shares issued to non-residents must be priced at not less than fair value, determined by an internationally accepted method and certified by a CA, SEBI-registered merchant banker or practising cost accountant.
Can old angel tax cases still be reopened?
Rounds from earlier years remain subject to assessment under the law applicable to those years, so keep valuation reports and records.
Please note: this guide is general information based on the rules as they stood on the review date above. Regulations and RBI/CBDT procedures change often — please get advice on your specific facts before acting.