How is angel tax calculated?

CA Vijay R Singh, FCA
Chartered Accountant · ICAI M.No. 153926 · FRN 136869W

Short answerAngel tax was calculated on the share premium received above fair market value — the excess of the issue price over the FMV (computed under Rule 11UA) was treated as the company’s income and taxed at around 30%. The provision (Section 56(2)(viib)) has been abolished from AY 2025-26, so fresh issues no longer attract it.

The old computation

Under the former Section 56(2)(viib), angel tax was charged on the premium above fair market value. You took the issue price, subtracted the FMV per share (under Rule 11UA), and the excess per share × number of shares was the company’s taxable income — taxed at roughly 30% plus surcharge and cess.

Now abolished

Crucially, this provision was abolished from AY 2025-26 (Finance Act 2024), so issues on or after 1 April 2025 don’t attract angel tax at all, for resident or foreign investors. The calculation now matters mainly for past years still open to assessment. Confirm the effective date for your specific issue.

A worked example

Example (pre-abolition): a startup issued 1,000 shares at ₹500 when FMV was ₹300 — the ₹200 premium × 1,000 = ₹2 lakh was taxed at ~30%. For a 2026 issue, the same facts attract no angel tax. But a valuation is still needed for FEMA and Section 56(2)(x). Our team can advise on both the historical and current position.

Startups

← Back to all questions

Talk to CA Vijay R Singh

Questions about angel tax on your share issue? You can message him directly, or book a short call to talk through your situation.

Book a 15-minute call
Message on WhatsApp
Email your query

This answer is general information for founders and startups, not tax or legal advice. Tax rates, thresholds and forms change with each Finance Act — please confirm the current position for your own facts, or speak to us, before acting.