Income Tax Department introduces Angel Tax Rules for valuing investments in startups

Posted on    27 September 2023

The Income-tax (Twenty first Amendment), Rules, 2023, also known as the Angel Tax Rules, were notified by the Central Board of Direct Taxes (CBDT) on September 25, 2023. These rules amend Rule 11UA of the Income-tax Rules, 1962, which provides for the valuation of unquoted equity shares for the purposes of Section 56(2)(viib) of the Income-tax Act, 1961.


Section 56(2)(viib) of the Income-tax Act, 1961, provides that if a company receives consideration for the issue of unquoted equity shares, which exceeds the fair market value of such shares, then the excess amount is deemed to be income from other sources in the hands of the company. This excess amount is popularly known as the Angel Tax.

Here are some of the key features of the Angel Tax Rules, 2023

  • The rules provide five methods for determining the fair market value of unquoted equity shares, giving the assessee more flexibility.
  • The rules provide a safe harbor margin of 10%, which will reduce the burden of Angel Tax on startups and other companies that receive investments from angel investors and venture capitalists.
  • The rules are applicable to all cases of issue of unquoted equity shares on or after September 26, 2023.

Click here to view/download the official copy of the notification

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