Angel Tax - Not Applicable On Recognised Start-ups
The valuations to be determined by the companies, especially the start-ups, is a challenge in itself. Such valuations determined by the company to raise capital could have the share price that is above, equal to or below the Fair Market Value (“FMV”). However, in case the shares are issued above the FMV, the positive difference between the share issue price and FMV is considered as income for the issuer company under Section 56(2)(viib) of the Income Tax Act, 1961 (“Act”) and taxed under the head ‘Income from Other Sources’ and is conventionally termed as ‘Angel Tax’. Therefore, for a successful computation of tax under the said section, the FMV must be calculated as per the prescribed methods.