New Delhi, Sept 27 (KNN) The Income Tax Department has notified new angel tax rules that comprise a mechanism to evaluate the shares issued by unlisted startups to investors.

While previously the angel tax — a tax levied on capital received on the sale of shares of a startup above the fair market value — applied only to local investors, the Budget for 2023-24 fiscal (April 2023 to March 2024) widened its ambit to include foreign investments.

As per the Budget, the excess premium will be considered as 'income from sources' and taxed at the rate of up to over 30 per cent. 

However, startups registered by the DPIIT are exempt from the new norms.

As per the changes in Rule 11UA of Income Tax rules, which comes into effect from September 25, the Central Board of Direct Taxes (CBDT) has provided that the valuation of CCPS can also be based on the fair market value of unquoted equity shares.

Angel tax – which is income tax at the rate of 30.6 per cent – is levied when an unlisted company issues shares to an investor at a price higher than its fair market value. 

Earlier, it was imposed only on investments made by a resident investor. However the Finance Act 2023 proposed to extend angel tax even to non-resident investors from April 1, 2024.

KNN Bureau