Angel Tax Amendments, 2023


According to Section 56(2)(viib) of the Income-tax Act, 1961, unlisted companies receiving consideration exceeding the fair market value, for shares issued to Indian residents, are liable to pay income-tax on such excess consideration. This taxation is called angel Tax provision.

While FEMA guidelines prohibit a company from issuing shares at a value below fair value, the newly proposed provisions seek to tax the transaction if the shares are issued above the fair value.

Hence while section 56(2)(viib) prescribes for an upper ceiling beyond which the price received for issue of shares will become taxable, FEMA guidelines provides for the floor price below which shares cannot be issued to non-residents.

However, Start-ups which are registered with the Department of Promotion of Industry and Internal Trade are excluded from the purview of angel tax provisions.


However, Finance Bill 2023 has now extended its applicability to non-resident investors as well. Consequently, premium received by unlisted company for the issue of shares (in excess of fair value) from non-residents, would also be taxed in the hands of the company.

Subsequent to this amendment, detailed interactions have been held with stakeholders. Based on the inputs , Rule 11UA for valuation of shares for the purposes of section 56(2)(viib) of the Act is proposed to be modified and notification of entities to which the said provision shall not apply is also being issued separately.

Comparison Between Existing Provision and Proposed Change

Rule 11UA Existing Provisions Proposed changes

Method of Valuation

Two valuation methods with respect to valuation of shares Discounted Cash Flow (DCF) and Net Asset Value (NAV) method for resident investors. Include 5 more valuation methods, available for non-resident investors, in addition to the DCF and NAV methods of valuation.

FMV of Equity Share

the fair market value of unquoted equity shares shall be the value, on the valuation date, of such unquoted equity shares as
determined in the following manner under clause (a) or clause (b) of Rule 11UA(2),at the option of assesses.
The price of equity share corresponding to consideration received by company for issue of share may be taken as the FMV of the equity shares for resident and notified non-resident investors subject to the extend the aggregate consideration received from notified entity within a period of 90 days of date of issue of equity share.

Valuation Report

Only Merchant Banker for only valuation as per DCF. Valuation report by the Merchant Banker for the purposes of this rule would be acceptable, if it is of a date not more than 90 days prior to the date of issue of shares

Safe Harbor Benefit

No such provision was there. Due to forex fluctuations, bidding processes and variations in other economic indicators, etc. that can affect the valuation of the unquoted equity shares it is proposed to provide a safe harbor of 10% variation in value.

Notification For Excluded Entities

It is also proposed to notify certain classes of persons being non-resident investors to whom clause (viib) of sub-section (2) of section 56 of the Act shall not be applicable.

The provisions section 56(2)(viib) of the Act shall not apply to consideration received from any person by start-ups covered in para 4 & 5 of Notification dated 19.2.2019 issued by the Ministry of Commerce and Industry in the Department for Promotion of Industry and Internal Trade (DPIIT)