Angel Tax: Rise and Fall of a Startup Tax Rule

For over a decade, a single tax provision made Indian startups dread raising money from investors. In 2025, it quietly disappeared for good.

IndEco0225

2012

Angel Tax Introduced

Section 56(2)(viib), in FM Pranab Mukherjee’s last Budget

11 APR 2018

DPIIT Exemption

Recognised startups exempted, if conditions are met

23 JUL 2024

Abolition Announced

Finance Bill 2024, FM Nirmala Sitharaman

1 APR 2025

Abolition Takes Effect

From FY 2025-26; not carried into the new Income Tax Act

13 years, gone in one Budget line: a provision meant to catch money laundering ended up taxing genuine startup fundraising instead.

📑 Contents

Timeline

2012: Angel Tax was introduced, under Section 56(2)(viib) of the Income Tax Act, 1961. It was part of Finance Minister Pranab Mukherjee’s last Budget, before he resigned to contest the presidency.
11 April 2018: The Department for Promotion of Industry and Internal Trade (DPIIT) exempted recognised startups from Angel Tax, if they met specific conditions.
23 July 2024: Finance Minister Nirmala Sitharaman announced Angel Tax’s abolition, through the Finance Bill, 2024.
1 April 2025: The abolition took effect, from Financial Year 2025-26 onward. Angel Tax was not carried into the new Income Tax Act, 2025.

Angel Tax was introduced in 2012, under Section 56(2)(viib) of the Income Tax Act, 1961.
It taxed the share premium an unlisted company raised, if that premium exceeded the company’s fair market value (FMV). The excess was treated as “income from other sources.”
The original goal was to curb money laundering, by catching shell companies that inflated share values to move unaccounted money.
In practice, Angel Tax was levied at around 31% on the excess premium, which caused real distress for genuine startups raising funds at prices investors themselves had agreed to.
From 11 April 2018, DPIIT-recognised startups could apply for exemption from Angel Tax, if they met eligibility conditions set by the department.
Angel Tax was abolished, effective 1 April 2025 (Financial Year 2025-26 onward). The abolition was announced through the Finance Bill, 2024, on 23 July 2024.
The abolition is prospective. Share issuances before 1 April 2025 remain under the old regime, and any pending assessments or notices from that period still need separate resolution.

Fair market value, for Angel Tax purposes, was determined under Rules 11UA and 11UAA of the Income Tax Rules, 1962. These rules were added and amended in 2012 and 2018.
The DPIIT exemption applied only to recognised startups: private limited companies that met specific conditions laid down in the department’s own notification.
Angel Tax was not carried forward into the Income Tax Act, 2025, which replaced the 1961 Act. This made the abolition permanent, not just a temporary pause.
This is a separate benefit from other startup tax reliefs, like the Section 80-IAC tax holiday (renumbered Section 140 under the 2025 Act). That holiday remains active, and offers eligible companies a full profit deduction, for any three consecutive years within their first 10 years.
Related, but a different topic, is IndEco0224 — Stand-Up India, a separate scheme funding SC/ST and women entrepreneurs, distinct from Angel Tax’s investor-side tax rules.

Angel Tax shows how a rule aimed at one problem, money laundering through shell companies, can end up burdening an entirely different group: legitimate, fast-growing startups.
The DPIIT exemption route, introduced in 2018, was a partial fix. It required startups to seek formal recognition and prove eligibility, rather than removing the underlying tax rule itself.
Full abolition, rather than another partial exemption, reflects a shift in how policymakers weighed the trade-off. The government explicitly said in 2024 that other tools already existed to address money laundering, making Angel Tax’s original justification less necessary.

In May 2026, DPIIT published a “Tax Playbook” for the startup ecosystem. It brings together the full range of startup tax benefits, including the Angel Tax abolition, into a single guide. (Source: YourStory)
The Playbook arrived as India’s recognised startup base crossed 2.23 lakh. It also maps older tax provisions to their renumbered counterparts, under the new Income Tax Act, 2025. (Source: YourStory)
On 4 February 2026, DPIIT had already liberalised startup recognition rules. It doubled the turnover threshold for recognition to ₹200 crore, and created a dedicated Deep Tech category. (Source: YourStory)