Angel Tax Exemption — Raise Funding Without the Tax Hit.
Section 56(2)(viib) can treat share premium above fair value as taxable income — unless the startup is DPIIT-recognised and has filed the exemption declaration correctly.
Contact UsSection 56(2)(viib) of the Income Tax Act treats the share premium a closely-held company receives from a resident investor — to the extent it exceeds the fair market value of the shares issued — as taxable income in the company's hands, a provision commonly called 'angel tax.' This can create a significant, often unexpected tax liability for startups raising funding at a valuation investors are willing to pay but which is hard to fully substantiate as 'fair market value' under prescribed valuation methods.
DPIIT-recognised startups meeting specified conditions are exempted from this provision — broadly, the startup must be DPIIT-recognised, and the aggregate paid-up share capital and premium after the proposed issue must not exceed the prescribed limit, among other conditions. Exemption requires filing a declaration in the prescribed form and, in some cases, providing specified details of the investor.
We assess whether the startup and the proposed funding round meet the exemption conditions, prepare and file the declaration, and put together the investor documentation the exemption process requires, so the round can close without an avoidable angel tax exposure.
Our Angel Tax Services
Angel Tax Exemption Eligibility Review
Checking DPIIT recognition status and the proposed funding round against Section 56(2)(viib) exemption conditions.
Exemption Declaration Filing
Preparing and filing the prescribed declaration to claim exemption from angel tax on the funding round.
Aggregate Paid-Up Capital Computation
Computing the aggregate paid-up share capital and premium limit relevant to exemption eligibility.
Investor Documentation Compilation
Compiling the specified investor details/documentation the exemption process requires.
Valuation Report Coordination
Coordinating a fair market value valuation report where needed to support the funding round independent of the exemption.
Multiple-Round Exemption Tracking
Tracking exemption conditions across successive funding rounds to confirm continued eligibility.
Exemption Query Response
Responding to any Income Tax department query raised on a declaration already filed.
Post-Funding Compliance Advisory
Advisory on maintaining conditions (like DPIIT recognition) that the exemption continues to depend on.
Our Process
DPIIT & Round Eligibility Check
We confirm current DPIIT recognition status and check the proposed round against the exemption conditions.
Aggregate Capital Computation
The aggregate paid-up share capital and premium post-issue is computed against the prescribed exemption limit.
Documentation Compilation
Investor details and supporting documentation required for the exemption process are compiled.
Declaration Filing
The exemption declaration is filed in the prescribed form ahead of or alongside the funding round's completion.
Post-Filing Monitoring
We monitor for any department query on the filed declaration and respond promptly if raised.
Why It Matters
Frequently Asked Questions
Raising a funding round and want to avoid angel tax exposure?
We'll check your eligibility, compute the aggregate capital limit, and file the exemption declaration correctly.
