My startup in Kolhapur has received an angel tax notice from the Income Tax Department; how can I defend against it?
LA Asked by Lakshmi Menon from India
Quick Answer
Angel tax under Section 56(2)(viib) of the Income Tax Act, 1961, is levied on premium received on issuance of shares exceeding the fair market value, treated as income from other sources.
Detailed Legal Analysis
Angel tax under Section 56(2)(viib) of the Income Tax Act, 1961, is levied on premium received on issuance of shares exceeding the fair market value, treated as income from other sources. You can defend by demonstrating that the valuation was conducted by a registered valuer using accepted methodologies such as DCF or net asset value.
If your startup is recognised under DPIIT and falls within the exemption notification, you should submit Form 2 to the CBDT within the prescribed time. You may file an objection before the assessing officer and, thereafter, an appeal before the CIT(A) and the Income Tax Appellate Tribunal.
The Bombay High Court may be approached under Article 226 if the assessment order is arbitrary. The Maharashtra Rent Control Act 1999 on stamp duty on the share allotment may be separately examined.
Maintaining proper valuation reports and shareholder documentation is essential for defence.
Legal Provisions Referenced
Verify the current statutory text at India Code (the official repository of Indian legislation) or the Legislative Department. This answer is general legal information, not advice on your specific matter.
Disclaimer: AI-generated for educational purposes only. Does not constitute legal advice. Consult a qualified practitioner.