Angel Tax Is Abolished — What It Means for Founders Raising in 2026
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Angel tax — the tax under Section 56(2)(viib) on share premiums received from investors above fair market value — has been abolished for all classes of investors, domestic and foreign, effective 1 April 2025 (FY 2025-26 onward). If you are raising a funding round in 2026, this is simply not a tax exposure you need to plan around anymore, regardless of whether your company holds DPIIT recognition.
For years, angel tax was one of the most feared compliance issues for Indian startups raising domestic capital — a mistimed valuation or an aggressive tax officer could turn a funding round into a tax liability. That changed with the Union Budget 2024 announcement, enacted with effect from 1 April 2025. If you've seen older articles describing a DPIIT-specific exemption you need to "qualify for," that framing is now outdated for any share issuance from 1 April 2025 onward.
What Changed: Abolition for All Investors, Not Just an Exemption
The distinction matters. Before this change, DPIIT-recognized startups could apply for an exemption from angel tax under specific conditions (covered below). What happened in the Union Budget 2024, effective 1 April 2025, is different in kind: Section 56(2)(viib) was removed entirely for all classes of investors — domestic and foreign alike — not just narrowed or extended for recognized startups. This means the tax itself no longer applies to qualifying share issuances after that date, whether or not the company holds DPIIT recognition.
A minor labelling inconsistency exists across secondary sources: some describe the enacting law as the "Finance Act, 2025," others as the "Finance (No. 2) Act, 2024" tied to the July 2024 Budget. The substance is consistent everywhere checked — the abolition and its 1 April 2025 effective date are not in dispute, only the formal Act name/year varies in secondary commentary.
What This Means for a 2026 Fundraise
If you're structuring a funding round now, you do not need to secure DPIIT recognition specifically to avoid angel tax exposure on the round, and you do not need to worry about the paid-up-capital-plus-premium ceilings that used to govern the old exemption. That said, DPIIT recognition still matters for other benefits — the Section 80-IAC tax holiday, IP fee rebates, and procurement relaxations — so it remains worth pursuing on its own merits, just not as an angel-tax workaround.
From the blog
Legal basis
Income Tax Act s.56(2)(viib) — abolished for all investors effective FY 2025-26 (1 April 2025); DPIIT/Notification-13/2019 mechanics are now legacy-only
CURRENT FACT: angel tax under s.56(2)(viib) was abolished outright for ALL investor classes effective 1 April 2025 — not merely exempted for DPIIT-recognized startups. The DPIIT-specific Notification 13/2019 exemption (₹25cr cap) is now historical, applicable only to pre-1-April-2025 share issuances.
Angel tax — abolished (current fact) AND legacy Notification 13/2019 mechanics (historical), explicitly dated (FLAGSHIP)
FLAGSHIP concept: content built on angel tax must state BOTH the current abolition (effective 1 April 2025, all investors) AND the pre-abolition DPIIT/Notification-13/2019 mechanics, each clearly dated, so content never implies the old qualification pathway is still live.
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