Chartered Accountant · ICAI M.No. 153926 · FRN 136869W · Reviewed on 9 October 2026
What exactly was abolished
The old rule taxed a closely-held company on the excess of issue price over fair market value — the “angel tax” that haunted seed rounds and DPIIT exemption filings. For any allotment on or after 1 April 2024, the clause simply does not apply — Indian angels, family offices and foreign funds alike. Older allotments stay governed by the law of their year, so legacy notices for earlier rounds still need defending on merits.
What still polices your round
Section 68: the company must still prove the investor’s identity, creditworthiness and the genuineness of the transaction — unexplained credits are taxed at penal rates. FEMA: shares to non-residents still cannot be issued below fair value certified by a CA or merchant banker, with FC-GPR reporting in 30 days. Section 56(2)(x): an investor who receives shares at a steep discount to FMV can be taxed on the bargain. The premium ceiling died; the paperwork did not.
What founders should do differently now
Price rounds commercially, keep a valuation report for the FEMA floor and for your own cap-table history, and bank the investor KYC file the day the money lands. The conversation with the tax office has moved from “why so high a premium?” to “show us the source” — a better conversation, but only for the prepared. Our fundraising & share-issue practice papers rounds end to end.