ANGEL TAX

About:

• Meaning:
  • It refers to the income tax payable on capital raised by unlisted companies via issue of shares where the share price is seen in excess of the fair market value of the shares sold.
    
    
  • The excess realisation is treated as income and taxed accordingly.
    
    
  • It has come to be called angel tax since it largely impacts angel investments in startups.
    
    
  
  
  
• Background: The tax was introduced in the 2012 Union Budget by then finance minister Pranab Mukherjee to arrest laundering of funds.
  
  
• Recent development: Several start-ups have raised concerns over taxation of angel funds under the Section 56 of the Income Tax Act, which provides for taxation of funds received by an entity. At least 80 startups have received notices to pay angel tax since last year.