Definition
Angel Tax
Angel tax is the tax on the premium that an unlisted company receives when it issues shares above their fair value, historically a pain point for startups.
When a closely held company issues shares to investors at a price above their assessed fair market value, the excess could be taxed as income — the so-called angel tax. Startups raising early funding often faced demands because valuations of young, loss-making firms are hard to justify by conventional methods.
To support the ecosystem, recognised startups under Startup India were granted exemptions and the rules were refined over time, including changes affecting investment from non-residents. The saga illustrates the tension between anti-evasion provisions and fostering risk capital.
Related terms
- Transfer PricingTransfer pricing rules govern how transactions between related entities, often across borders, must be priced to reflect fair market value for tax purposes.
- Startup IndiaStartup India is the government initiative to nurture startups through tax benefits, simpler compliance, funding support and recognition.
Plain-English explainer from The Dispatch Investors Encyclopedia. General information, not financial advice.