Which investors are outside angel tax after the 2023 notifications, and does the section still apply at all?
Two carve-outs, and the charge is on its way out. Notification 29/2023 exempts specified classes of non-resident investor; Notification 30/2023, deemed effective from 1 April 2023, supersedes that relief and preserves the exemption for companies meeting the DPIIT conditions, for resident and non-resident investors alike. Section 56(2)(viib) itself was not omitted: a third proviso inserted by the Finance (No. 2) Act 2024 disapplies the clause to consideration received on or after 1 April 2025, and the rest of the clause, the earlier provisos included, remains in force.
Decided by the CBDT Circulars & Instructions (Central Board of Direct Taxes) on 2023-05-24, reported as Notification No. 29/2023, S.O. 2274(E) [F. No. 370142/9/2023-TPL (Part-I)], dated 24 May 2023; Notification No. 30/2023, S.O. 2275(E) [F. No. 370142/9/2023-TPL (Part-I)], dated 24 May 2023. It bears on section 56(2)(viib) of the Income Tax Act 1961, in Gifts, Shares & Angel Tax matters.
Until the Finance Act 2023, s.56(2)(viib) reached only consideration from residents; that Act extended it to any person, resident or non-resident, which is what made the notifications necessary. So the year matters twice over: whether the subscriber's residence took the receipt outside the charge at all, and whether the company or the investor falls in a carve-out. The exempt classes under 29/2023 are government-related investors such as central banks, sovereign wealth funds and international or multilateral organisations with 75% or more government ownership; regulated banks and insurance entities; SEBI-registered Category-I FPIs from 21 specified countries; and institutional investors such as endowment funds, pension funds and broad-based pooled vehicles with 50 or more investors, hedge funds excluded.
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Until the Finance Act 2023, section 56(2)(viib) taxed share consideration received by an unlisted company in excess of fair market value only where the subscriber was a resident. The Finance Act 2023 extended the charge to consideration received from any person, whether resident or non-resident. The CBDT then issued two notifications on 24 May 2023 carving out exempt classes of investors and preserving the recognised-startup exemption.
Notification No. 29/2023, issued under sub-clause (ii) of the first proviso to section 56(2)(viib), notifies three classes of persons to whom that clause does not apply: government and government-related investors such as central banks, sovereign wealth funds and international or multilateral organisations or agencies, including entities controlled by the Government or in which direct or indirect Government ownership is seventy-five per cent or more; banks and entities in the insurance business, where the entity is subject to applicable regulation in the country where it is established, incorporated or resident; and, provided the entity is resident in a country or specified territory in the Annexure and is subject to applicable regulation there, four kinds of institutional investor - Category-I Foreign Portfolio Investors registered with SEBI, endowment funds associated with a university, hospital or charity, pension funds created or established under the law of the foreign country or territory, and broad-based pooled investment vehicles or funds with more than fifty investors that are not hedge funds and do not employ diverse or complex trading strategies. The Annexure lists twenty-one countries and specified territories: Australia, Austria, Belgium, Canada, the Czech Republic, Denmark, Finland, France, Germany, Iceland, Israel, Italy, Japan, Korea, New Zealand, Norway, Russia, Spain, Sweden, the United Kingdom and the United States. Notification No. 30/2023, issued under the same proviso and deemed to have come into force from 1 April 2023, supersedes Notification S.O. 1131(E) [No. 13/2019] dated 5 March 2019, except as respects things done or omitted before supersession, and provides that section 56(2)(viib) shall not apply to consideration received by a company for issue of shares exceeding their face value, from any person, where the company fulfils the conditions in para 4 of the Department for Promotion of Industry and Internal Trade notification G.S.R. 127(E) dated 19 February 2019 and files the declaration referred to in para 5 of that notification.
The Finance Act 2023 extended section 56(2)(viib) to consideration received from any person, whether resident or non-resident, and the Board's own consultation circular of 26 May 2023 records why the exemptions followed: representations were received that genuine non-resident investors would face undue hardship over valuation. The two notifications answer that in different registers. Notification 29/2023 works on the identity of the investor. It exempts categories whose participation carries little risk of the mischief the provision targets - sovereign and government-controlled money, regulated banks and insurers, and regulated institutional pools. For the third category it adds a jurisdictional filter: the investor must be resident in one of twenty-one listed countries or specified territories and subject to applicable regulation there. That filter attaches to all four kinds of institutional investor in that category, not to Foreign Portfolio Investors alone, and it does not attach to the first two categories at all. Notification 30/2023 works instead on the identity of the issuer, preserving the recognised-startup route: a company that satisfies the DPIIT conditions and files the DPIIT declaration is outside the clause whoever the subscriber is, which is what the words 'from any person' achieve after the 2023 extension to non-residents. It supersedes the 2019 notification that had carried the same relief under the pre-amendment provision, and is backdated to 1 April 2023 so that the relief runs from the start of the year in which the extension took effect.
the provisions of clause (viib) of sub-section (2) of section 56 of the said Act shall not apply to consideration received by a company for issue of shares that exceeds the face value of such shares, if the said consideration has been received from any person, by a company which fulfills the conditions specified in para 4 of the notification number G.S.R. 127(E), dated the 19th February, 2019
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Handle my notice → Ask a CA on WhatsAppTwo carve-outs, and the charge is on its way out. Notification 29/2023 exempts specified classes of non-resident investor; Notification 30/2023, deemed effective from 1 April 2023, supersedes that relief and preserves the exemption for companies meeting the DPIIT conditions, for resident and non-resident investors alike. Section 56(2)(viib) itself was not omitted: a third proviso inserted by the Finance (No. 2) Act 2024 disapplies the clause to consideration received on or after 1 April 2025, and the rest of the clause, the earlier provisos included, remains in force. This was decided by the CBDT Circulars & Instructions (Central Board of Direct Taxes) and bears on section 56(2)(viib) of the Income Tax Act 1961. It is reported as Notification No. 29/2023, S.O. 2274(E) [F. No. 370142/9/2023-TPL (Part-I)], dated 24 May 2023; Notification No. 30/2023, S.O. 2275(E) [F. No. 370142/9/2023-TPL (Part-I)], dated 24 May 2023. Until the Finance Act 2023, s.56(2)(viib) reached only consideration from residents; that Act extended it to any person, resident or non-resident, which is what made the notifications necessary. So the year matters twice over: whether the subscriber's residence took the receipt outside the charge at all, and whether the company or the investor falls in a carve-out. The exempt classes under 29/2023 are government-related investors such as central banks, sovereign wealth funds and international or multilateral organisations with 75% or more government ownership; regulated banks and insurance entities; SEBI-registered Category-I FPIs from 21 specified countries; and institutional investors such as endowment funds, pension funds and broad-based pooled vehicles with 50 or more investors, hedge funds excluded. If it applies to you, the first step is this: Fix the assessment year first, then check whether the subscriber is resident or non-resident and whether the charge extended to that subscriber in that year.
Until the Finance Act 2023, section 56(2)(viib) taxed share consideration received by an unlisted company in excess of fair market value only where the subscriber was a resident. The Finance Act 2023 extended the charge to consideration received from any person, whether resident or non-resident. The CBDT then issued two notifications on 24 May 2023 carving out exempt classes of investors and preserving the recognised-startup exemption. The matter was decided on 2023-05-24 by the CBDT Circulars & Instructions (Central Board of Direct Taxes). On those facts the CBDT Circulars & Instructions held as follows. Notification No. 29/2023, issued under sub-clause (ii) of the first proviso to section 56(2)(viib), notifies three classes of persons to whom that clause does not apply: government and government-related investors such as central banks, sovereign wealth funds and international or multilateral organisations or agencies, including entities controlled by the Government or in which direct or indirect Government ownership is seventy-five per cent or more; banks and entities in the insurance business, where the entity is subject to applicable regulation in the country where it is established, incorporated or resident; and, provided the entity is resident in a country or specified territory in the Annexure and is subject to applicable regulation there, four kinds of institutional investor - Category-I Foreign Portfolio Investors registered with SEBI, endowment funds associated with a university, hospital or charity, pension funds created or established under the law of the foreign country or territory, and broad-based pooled investment vehicles or funds with more than fifty investors that are not hedge funds and do not employ diverse or complex trading strategies. The Annexure lists twenty-one countries and specified territories: Australia, Austria, Belgium, Canada, the Czech Republic, Denmark, Finland, France, Germany, Iceland, Israel, Italy, Japan, Korea, New Zealand, Norway, Russia, Spain, Sweden, the United Kingdom and the United States. Notification No. 30/2023, issued under the same proviso and deemed to have come into force from 1 April 2023, supersedes Notification S.O. 1131(E) [No. 13/2019] dated 5 March 2019, except as respects things done or omitted before supersession, and provides that section 56(2)(viib) shall not apply to consideration received by a company for issue of shares exceeding their face value, from any person, where the company fulfils the conditions in para 4 of the Department for Promotion of Industry and Internal Trade notification G.S.R. 127(E) dated 19 February 2019 and files the declaration referred to in para 5 of that notification.
The Finance Act 2023 extended section 56(2)(viib) to consideration received from any person, whether resident or non-resident, and the Board's own consultation circular of 26 May 2023 records why the exemptions followed: representations were received that genuine non-resident investors would face undue hardship over valuation. The two notifications answer that in different registers. Notification 29/2023 works on the identity of the investor. It exempts categories whose participation carries little risk of the mischief the provision targets - sovereign and government-controlled money, regulated banks and insurers, and regulated institutional pools. For the third category it adds a jurisdictional filter: the investor must be resident in one of twenty-one listed countries or specified territories and subject to applicable regulation there. That filter attaches to all four kinds of institutional investor in that category, not to Foreign Portfolio Investors alone, and it does not attach to the first two categories at all. Notification 30/2023 works instead on the identity of the issuer, preserving the recognised-startup route: a company that satisfies the DPIIT conditions and files the DPIIT declaration is outside the clause whoever the subscriber is, which is what the words 'from any person' achieve after the 2023 extension to non-residents. It supersedes the 2019 notification that had carried the same relief under the pre-amendment provision, and is backdated to 1 April 2023 so that the relief runs from the start of the year in which the extension took effect. In the words reproduced by the source cited on this page: "the provisions of clause (viib) of sub-section (2) of section 56 of the said Act shall not apply to consideration received by a company for issue of shares that exceeds the face value of such shares, if the said consideration has been received from any person, by a company which fulfills the conditions specified in para 4 of the notification number G.S.R. 127(E), dated the 19th February, 2019"
It was decided by the CBDT Circulars & Instructions on 2023-05-24 and is reported as Notification No. 29/2023, S.O. 2274(E) [F. No. 370142/9/2023-TPL (Part-I)], dated 24 May 2023; Notification No. 30/2023, S.O. 2275(E) [F. No. 370142/9/2023-TPL (Part-I)], dated 24 May 2023. Binding on the department, not on the assessee or the courts. An assessee may rely on a circular that is beneficial to them. A CBDT circular or instruction binds officers of the department but not the assessee and not the courts. Where a circular helps you, you may hold the department to it. Where it hurts you, it cannot override the Act or a judgment. On section 56(2)(viib), the practical question is whether the facts of your own notice match the facts of this case closely enough for the same rule to apply.
It helps the taxpayer. Notification No. 29/2023, issued under sub-clause (ii) of the first proviso to section 56(2)(viib), notifies three classes of persons to whom that clause does not apply: government and government-related investors such as central banks, sovereign wealth funds and international or multilateral organisations or agencies, including entities controlled by the Government or in which direct or indirect Government ownership is seventy-five per cent or more; banks and entities in the insurance business, where the entity is subject to applicable regulation in the country where it is established, incorporated or resident; and, provided the entity is resident in a country or specified territory in the Annexure and is subject to applicable regulation there, four kinds of institutional investor - Category-I Foreign Portfolio Investors registered with SEBI, endowment funds associated with a university, hospital or charity, pension funds created or established under the law of the foreign country or territory, and broad-based pooled investment vehicles or funds with more than fifty investors that are not hedge funds and do not employ diverse or complex trading strategies. The Annexure lists twenty-one countries and specified territories: Australia, Austria, Belgium, Canada, the Czech Republic, Denmark, Finland, France, Germany, Iceland, Israel, Italy, Japan, Korea, New Zealand, Norway, Russia, Spain, Sweden, the United Kingdom and the United States. Notification No. 30/2023, issued under the same proviso and deemed to have come into force from 1 April 2023, supersedes Notification S.O. 1131(E) [No. 13/2019] dated 5 March 2019, except as respects things done or omitted before supersession, and provides that section 56(2)(viib) shall not apply to consideration received by a company for issue of shares exceeding their face value, from any person, where the company fulfils the conditions in para 4 of the Department for Promotion of Industry and Internal Trade notification G.S.R. 127(E) dated 19 February 2019 and files the declaration referred to in para 5 of that notification. It arises in Gifts, Shares & Angel Tax matters, on section 56(2)(viib) of the Income Tax Act 1961, and was decided by Central Board of Direct Taxes. Before relying on it, read the source linked on this page and check whether it has since been distinguished, overruled or overtaken by an amendment to the Income Tax Act. In practice the steps that follow from it are these. Test the investor against the exempt classes in Notification 29/2023 before arguing valuation at all. For a DPIIT-recognised startup, verify the conditions in Notification 30/2023 — including that aggregate paid-up share capital and premium after the issue does not exceed Rs 25 crores, ignoring shares issued to non-residents, venture capital companies and funds and qualifying listed companies — and the seven-year restriction on specified investments such as residential property, non-business real estate, loans and advances, capital contributions, securities, vehicles above Rs 10 lakhs, jewellery and archaeological collections. Use Notification 30/2023, not 29/2023, where the two overlap; the later notification supersedes the earlier relief and is deemed effective from 1 April 2023.
Still good law. Both notifications were read in full and neither carries a withdrawal, correction or supersession annotation. Notification 30/2023 itself supersedes Notification S.O. 1131(E) [No. 13/2019] dated 5 March 2019, except as respects things done or omitted before supersession. Section 56(2)(viib) was not omitted by the Finance (No. 2) Act 2024. That Act inserted a third proviso to the clause - 'Provided also that the provisions of this clause shall not apply on or after the 1st day of April, 2025' - with effect from 1 April 2025. The clause, both earlier provisos, the Explanation and these notifications therefore all remain on the statute book; what the third proviso does is stop the clause reaching consideration received on or after 1 April 2025. Two things follow for these notifications. They continue to govern consideration received before that date, and assessments and appeals for those years are still open. And the second proviso continues to bite on relief already taken: where a company was outside the clause because it satisfied the conditions in the notification issued under clause (ii) of the first proviso - the DPIIT conditions preserved by Notification 30/2023 - and then fails to comply with any of those conditions, the consideration exceeding fair market value is deemed to be its income chargeable to tax for the previous year in which the failure takes place, with the penalty exposure that attaches to such an addition. The third proviso does not relieve that exposure, whenever the failure occurs. Separately, the Income-tax Act, 1961 has since been repealed. No source could be cited for that finding. Checking whether an authority still stands matters as much as knowing what it held: a decision may be overruled on one point and survive on another, or the provision it interprets may have been amended since. Read the source and the editor's note on this page before relying on it in a reply to an Assessing Officer or in an appeal.
This is a pair of CBDT notifications and a note on the statutory history, not a judgment - do not cite it as authority. The Annexure to Notification 29/2023 is now on record: Australia, Austria, Belgium, Canada, the Czech Republic, Denmark, Finland, France, Germany, Iceland, Israel, Italy, Japan, Korea, New Zealand, Norway, Russia, Spain, Sweden, the United Kingdom and the United States. Read the qualifying condition carefully: for category (iii) the investor must be resident in one of those countries or territories and subject to applicable regulation there, and a broad-based pooled vehicle must have more than fifty investors - not fifty or more. Notification 30/2023 does not set out the startup conditions; it cross-refers to para 4 of DPIIT notification G.S.R. 127(E) dated 19 February 2019 and requires the para 5 declaration to be filed, so read the DPIIT notification itself before advising that a company qualifies. Note also that Notification 30/2023 supersedes Notification No. 13/2019 dated 5 March 2019, not Notification 29/2023. The conditions themselves are in DPIIT notification G.S.R. 127(E) dated 19 February 2019, which has not been read, so the Rs. 25 crore paid-up capital and premium ceiling and the seven-year restriction on specified investments are not verified from a primary source and should not be quoted from this entry. Section 56(2)(viib) has not been omitted. It stands, disapplied to consideration received on or after 1 April 2025 by a third proviso inserted by the Finance (No. 2) Act 2024; the text of that Act has not been read for this entry, and the proviso is taken from the section as it now stands. This library shows the verification state of every entry openly. This entry has not yet been read in full by a chartered accountant. The summary reflects the sources listed on this page. Read the source before you rely on it in a reply to an Assessing Officer or in an appeal before the Commissioner (Appeals) or the Income Tax Appellate Tribunal.
Notification No. 29/2023, issued under sub-clause (ii) of the first proviso to section 56(2)(viib), notifies three classes of persons to whom that clause does not apply: government and government-related investors such as central banks, sovereign wealth funds and international or multilateral organisations or agencies, including entities controlled by the Government or in which direct or indirect Government ownership is seventy-five per cent or more; banks and entities in the insurance business, where the entity is subject to applicable regulation in the country where it is established, incorporated or resident; and, provided the entity is resident in a country or specified territory in the Annexure and is subject to applicable regulation there, four kinds of institutional investor - Category-I Foreign Portfolio Investors registered with SEBI, endowment funds associated with a university, hospital or charity, pension funds created or established under the law of the foreign country or territory, and broad-based pooled investment vehicles or funds with more than fifty investors that are not hedge funds and do not employ diverse or complex trading strategies. The Annexure lists twenty-one countries and specified territories: Australia, Austria, Belgium, Canada, the Czech Republic, Denmark, Finland, France, Germany, Iceland, Israel, Italy, Japan, Korea, New Zealand, Norway, Russia, Spain, Sweden, the United Kingdom and the United States. Notification No. 30/2023, issued under the same proviso and deemed to have come into force from 1 April 2023, supersedes Notification S.O. 1131(E) [No. 13/2019] dated 5 March 2019, except as respects things done or omitted before supersession, and provides that section 56(2)(viib) shall not apply to consideration received by a company for issue of shares exceeding their face value, from any person, where the company fulfils the conditions in para 4 of the Department for Promotion of Industry and Internal Trade notification G.S.R. 127(E) dated 19 February 2019 and files the declaration referred to in para 5 of that notification.
TaxSphere, “CBDT Notifications 29 & 30/2023”, https://taxnotice.vittsphere.com/caselaw/case/cbdt-notifications-29-30-2023-angel-tax/ (validity last checked 2026-08-19)
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