ANGEL TAX (Syllabus: GS Paper 3 – Economy)

News-CRUX-10     30th March 2024        

Context:Commerce and industry minister said that the angel tax was introduced because fly-by-night entities were using this route to inflate value and create capital.

Angel Tax

  • About: An income tax levied, when an unlisted company issues shares to an investor at a price higher than its fair market value.
  • Under: Under Section 56(2)(viib) of the Indian Income Tax Act.
  • Tax rate: The effective rate of the angel tax is 30.6%.
  • Aim: To curb the practice of issuing shares at a premium much higher than their fair value, which could potentially involve money laundering or tax evasion.
  • Applicability:

oAngel Tax was applicable to startups and unlisted companies that raised capital through the issue of shares.

oIf the issue price of the shares exceeded the fair market value, the excess amount was treated as income and taxed according.

Exemptions:

  • The entity should be a DPIIT recognized Startup; Aggregate amount of paid up share capital and share premium of the Startup after the proposed issue of share, if any, does not exceed INR 25 Crore.

Eligibility Criteria for Startup:

  • Turnover should be less than INR 100 Crores in any of the previous financial years.
  • An entity shall be considered as a startup up to 10 years from the date of its incorporation.