What is Angel tax?
Angel Tax means the income tax payable on Share Premium collected by issue of capital by an unlisted company.
Share Premium refers to the amount collected by the company in excess of the face value of shares. Face Value of shares means the nominal value of shares of a company as defined in the Memorandum of Association of the Company.
In case of the Company issues shares to an investor at price in excess of face value, the excess amount is called as Share Premium. Generally, all the startups allot shares at a Premium to retain the control of the company.
As per the norms of Angel Tax, the excess realisation of share value is treated as income and taxed accordingly.
The Angel tax was introduced by then finance minister Pranab Mukherjee in the 2012 Union Budget to arrest laundering of funds.
The imposition of Angel Tax impacts the Startups heavily as they will end up in paying Income tax on the investments received from family and friends, Angel Investor and Private Equity Investors.