What is angel tax for start-ups?

Angel tax – which is income tax at the rate of 30.6 per centis levied when an unlisted company issues shares to an investor at a price higher than its fair market value. Earlier, it was imposed only on investments made by aresident investor. However the Finance Act 2023 proposed to extend angel tax even to non- resident investors from April 1.

What were the changes for angel tax in Budget 2023- 24?

The Finance Act, 2023,had amended Section 56(2)(viib) of the Income-tax Act. The pro- vision, colloquially known as the ‘angel tax’ was first introduced in 2012 to deter the gen eration and use of unaccounted money through the subscription of shares of a closely held company at a value that is higher than the fair market value of the firm’s shares.

The provision had stated that when an unlisted company, such as a start-up, receives equity investment from a resident for issue of shares that exceeds the face value of such shares, it will be counted as income for the startup and be subject to income tax.

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