Angel Tax Exemption for DPIIT Startups: Section 56(2)(viib) Form 2 Filing & Capital Safeguards

Safeguarding Equity Investments: Angel Tax Exemption under Section 56(2)(viib)

When an early-stage startup raises angel funding or seed capital by issuing unlisted equity shares at a premium exceeding fair market value (FMV), tax authorities previously scrutinized the excess premium as taxable 'Income from Other Sources' under Section 56(2)(viib)—a punitive provision popularly known as Angel Tax. While the Union Budget substantially relaxed these norms, obtaining formal DPIIT exemption safeguards companies from retrospective scrutiny.

Eligible DPIIT-recognized startups can claim 100% exemption from Angel Tax by submitting a self-declaration in Form 2 through the National Single Window System (NSWS) portal, provided the aggregate amount of paid-up share capital and share premium after share issue does not exceed ₹25 Crores (excluding investments from listed companies, non-residents, and SEBI-registered Venture Capital Funds). KOKJAGUAR Consultancy helps founders file Form 2 declarations with complete statutory compliance. Explore our startup advisory services.

Prohibited Investments under Section 56 Form 2 Declaration

• Building or purchasing residential property other than for operational employee accommodation.
• Providing loans or advances to third parties other than in the ordinary course of lending business.
• Investing in shares, capital contributions, or equity securities of other corporate entities.
• Purchasing high-value luxury motor vehicles costing over ₹10 Lakhs or luxury aircraft/yachts.