Chartered Accountant · ICAI M.No. 153926 · FRN 136869W
How the trigger worked
If a company issued shares for more than their fair market value (computed under Rule 11UA), the excess over FMV was treated as the company’s income. Example: FMV ₹100 per share, issued at ₹150 — the ₹50 premium was taxed. Only the amount above FMV was caught, not the whole premium.
Abolished from AY 2025-26
The Finance Act 2024 removed Section 56(2)(viib) with effect from AY 2025-26, so issues on or after 1 April 2025 do not attract angel tax at all. Confirm the effective date for your issue.
Why valuation still matters
Even though angel tax is gone, a defensible valuation is still needed for several other rules. FEMA pricing requires shares to a non-resident to be issued at or above fair value; Section 56(2)(x) can tax the investor if shares are received below fair market value; and company law requires a registered valuer report for a preferential allotment. So the discipline of pricing a round against FMV has not disappeared — only the specific charge on the company’s premium has. Example: issuing shares well below FMV to bring in a friendly investor could now create a tax in the investor’s hands rather than the company’s, which is rarely what anyone intends. The safe approach is unchanged: get a valuation, price at or around FMV, and document the basis. See how FMV is calculated, and keep the report with your board minutes.