I have read that angel tax was abolished. Is section 56(2)(viib) gone from the statute book, and from which year does it stop applying?
The clause has not been omitted. It remains printed in section 56(2), and the Finance (No. 2) Act 2024 inserted a third proviso reading: 'Provided also that the provisions of this clause shall not apply on or after the 1st day of April, 2025.' The departmental page carrying the heading 'Income from other sources' and the stamp 'Year: 2024 (No. 2)' records the insertion as being made by the Finance (No. 2) Act, 2024, w.e.f. 1-4-2025, and the page stamped 'Year: 2025' prints the third proviso as part of the enacted text.
Decided by the CBDT Circulars & Instructions (Not applicable — statutory text) on 2025-04-01, reported as Income-tax Act, 1961, s.56(2)(viib), third proviso, inserted by the Finance (No. 2) Act, 2024, w.e.f. 1-4-2025. It bears on section 56(2)(viib), section 270A, section Rule 11UA of the Income Tax Act 1961, in Gifts, Shares & Angel Tax, How Tax Law Is Read and Penalty matters.
The distinction between omission and a switching-off proviso is not academic. Because the clause survives, the definitions in its Explanation survive with it, and so does everything hanging off it — Rule 11UA(2) to (4), the notifications made under clause (ii) of the first proviso, and above all the second proviso, which deems income and a misreporting under section 270A(8) and (9) where a company that escaped the clause through a notification later breaks the notified conditions. That second proviso is not switched off by reference to the year of issue of shares; it fixes the charge in the previous year in which the failure takes place. A company that issued shares in, say, FY 2022-23 under a notified exemption and breaks the conditions afterwards should not assume the 2024 amendment saves it. There is also a live commencement question the words do not settle: the proviso says the clause 'shall not apply on or after the 1st day of April, 2025', while the departmental footnote gives the amendment effect 'w.e.f. 1-4-2025', which on the ordinary rule for a charging provision means from AY 2025-26 — that is, previous year 2024-25. Those two readings diverge for share issues made during FY 2024-25. Every entry in this library that treats section 56(2)(viib) as live law must state the year it is about.
Binding on the department, not on the assessee or the courts. An assessee may rely on a circular that is beneficial to them.
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Section 56(2)(viib) charges, in the hands of a company in which the public are not substantially interested, so much of the consideration received for the issue of shares as exceeds the fair market value of those shares, where the consideration exceeds the face value. Its first proviso excludes consideration received by a venture capital undertaking from a venture capital company, venture capital fund or specified fund, and consideration received by a company from a class or classes of persons notified by the Central Government. Its second proviso, where such a notification-based exclusion is later broken, deems the excess to be the company's income in the previous year of failure and deems it under-reported in consequence of misreporting under section 270A(8) and (9). The Finance (No. 2) Act 2024 added a third proviso.
The third proviso to section 56(2)(viib), as printed on the departmental page carrying the heading 'Income from other sources' and the stamp 'Year: 2025', reads: 'Provided also that the provisions of this clause shall not apply on or after the 1st day of April, 2025.' The clause itself, its first and second provisos and its Explanation remain on the statute book.
Legislative technique rather than judicial reasoning: instead of omitting the clause, Parliament left it standing and disapplied it prospectively. The consequence is that everything defined by or dependent on the clause continues in force for open years, and the second proviso's deeming — which is keyed to the previous year of the failure and not to the year of issue — is not on its face displaced by a proviso addressed to the application of 'this clause' from a future date.
Provided also that the provisions of this clause shall not apply on or after the 1st day of April, 2025.
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Handle my notice → Ask a CA on WhatsAppThe clause has not been omitted. It remains printed in section 56(2), and the Finance (No. 2) Act 2024 inserted a third proviso reading: 'Provided also that the provisions of this clause shall not apply on or after the 1st day of April, 2025.' The departmental page carrying the heading 'Income from other sources' and the stamp 'Year: 2024 (No. 2)' records the insertion as being made by the Finance (No. 2) Act, 2024, w.e.f. 1-4-2025, and the page stamped 'Year: 2025' prints the third proviso as part of the enacted text. This was decided by the CBDT Circulars & Instructions (Not applicable — statutory text) and bears on section 56(2)(viib), section 270A, section Rule 11UA of the Income Tax Act 1961. It is reported as Income-tax Act, 1961, s.56(2)(viib), third proviso, inserted by the Finance (No. 2) Act, 2024, w.e.f. 1-4-2025. The distinction between omission and a switching-off proviso is not academic. Because the clause survives, the definitions in its Explanation survive with it, and so does everything hanging off it — Rule 11UA(2) to (4), the notifications made under clause (ii) of the first proviso, and above all the second proviso, which deems income and a misreporting under section 270A(8) and (9) where a company that escaped the clause through a notification later breaks the notified conditions. That second proviso is not switched off by reference to the year of issue of shares; it fixes the charge in the previous year in which the failure takes place. A company that issued shares in, say, FY 2022-23 under a notified exemption and breaks the conditions afterwards should not assume the 2024 amendment saves it. There is also a live commencement question the words do not settle: the proviso says the clause 'shall not apply on or after the 1st day of April, 2025', while the departmental footnote gives the amendment effect 'w.e.f. 1-4-2025', which on the ordinary rule for a charging provision means from AY 2025-26 — that is, previous year 2024-25. Those two readings diverge for share issues made during FY 2024-25. Every entry in this library that treats section 56(2)(viib) as live law must state the year it is about. If it applies to you, the first step is this: Stop describing the clause as omitted; check the third proviso and quote it, because an assessment for an open earlier year is unaffected by it.
Section 56(2)(viib) charges, in the hands of a company in which the public are not substantially interested, so much of the consideration received for the issue of shares as exceeds the fair market value of those shares, where the consideration exceeds the face value. Its first proviso excludes consideration received by a venture capital undertaking from a venture capital company, venture capital fund or specified fund, and consideration received by a company from a class or classes of persons notified by the Central Government. Its second proviso, where such a notification-based exclusion is later broken, deems the excess to be the company's income in the previous year of failure and deems it under-reported in consequence of misreporting under section 270A(8) and (9). The Finance (No. 2) Act 2024 added a third proviso. The matter was decided on 2025-04-01 by the CBDT Circulars & Instructions (Not applicable — statutory text). On those facts the CBDT Circulars & Instructions held as follows. The third proviso to section 56(2)(viib), as printed on the departmental page carrying the heading 'Income from other sources' and the stamp 'Year: 2025', reads: 'Provided also that the provisions of this clause shall not apply on or after the 1st day of April, 2025.' The clause itself, its first and second provisos and its Explanation remain on the statute book.
Legislative technique rather than judicial reasoning: instead of omitting the clause, Parliament left it standing and disapplied it prospectively. The consequence is that everything defined by or dependent on the clause continues in force for open years, and the second proviso's deeming — which is keyed to the previous year of the failure and not to the year of issue — is not on its face displaced by a proviso addressed to the application of 'this clause' from a future date. In the words reproduced by the source cited on this page: "Provided also that the provisions of this clause shall not apply on or after the 1st day of April, 2025."
It was decided by the CBDT Circulars & Instructions on 2025-04-01 and is reported as Income-tax Act, 1961, s.56(2)(viib), third proviso, inserted by the Finance (No. 2) Act, 2024, w.e.f. 1-4-2025. 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), section 270A, section Rule 11UA, 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 cuts both ways and is cited by both sides. The third proviso to section 56(2)(viib), as printed on the departmental page carrying the heading 'Income from other sources' and the stamp 'Year: 2025', reads: 'Provided also that the provisions of this clause shall not apply on or after the 1st day of April, 2025.' The clause itself, its first and second provisos and its Explanation remain on the statute book. It arises in Gifts, Shares & Angel Tax, How Tax Law Is Read and Penalty matters, on section 56(2)(viib), section 270A, section Rule 11UA of the Income Tax Act 1961, and was decided by Not applicable — statutory text. 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. For any share issue in FY 2024-25, note the divergence between the proviso's own words ('on or after the 1st day of April, 2025') and the departmental commencement note ('w.e.f. 1-4-2025', which on the ordinary rule means AY 2025-26), and take the point expressly rather than assuming it. For companies that took the benefit of a notification under clause (ii) of the first proviso, keep testing compliance with the notified conditions — the second proviso still bites in the year of failure and carries a deemed misreporting under section 270A(8) and (9). Label every section 56(2)(viib) authority in a file note with the assessment year it decides; the DCF-versus-NAV dispute continues to govern all open years up to AY 2024-25.
Still good law. The insertion is recorded on the Year 2024 (No. 2) page as a pending amendment and appears as enacted text on the Year 2025 page; the Year 2024 (No. 1) page does not carry it. No later amendment to the clause was found on the Year 2025 page. I have not checked how any Tribunal or Court has read the commencement of the third proviso, and no decision on it was located. 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 entry CORRECTS the working assumption in the research brief that the Finance (No. 2) Act 2024 'omitted' clause (viib). It did not. Three departmental pages were read, each time demanding the section heading and the 'Year:' stamp: /w/section-56-62 (Year: 2024 (No. 1)) prints clause (viib) with two provisos and no third; /w/section-56-63 (Year: 2024 (No. 2)) prints the same two provisos followed by the italicised note 'Following third proviso shall be inserted after the second proviso in clause (viib) of sub-section (2) of section 56 by the Finance (No. 2) Act, 2024, w.e.f. 1-4-2025:'; /w/section-56-64 (Year: 2025) prints the third proviso in square brackets as enacted text. All three carried the heading 'Income from other sources'. Separately, the words 'being a resident' appear in the opening of clause (viib) on the page stamped Year 2018 and are gone from the page stamped Year 2025 — I did not establish which Act removed them, and this entry states nothing about it. I did not read the Memorandum to the Finance (No. 2) Bill 2024, so the AY 2025-26 reading of the commencement is stated as the ordinary rule, not as verified departmental guidance. 'decided_on' is the commencement date the departmental note gives for the third proviso — 'by the Finance (No. 2) Act, 2024, w.e.f. 1-4-2025' — and not a judgment date or the date of checking, which is in 'checked_on'. It is recorded as a commencement date only; the entry does not thereby resolve the divergence described above between that note and the proviso's own words. An attempt to read the Memorandum to the Finance (No. 2) Bill 2024 at incometaxindia.gov.in/budgets and bills/2024/memorandum-2024.pdf returned HTTP 404 on the verification pass as well. 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.
The third proviso to section 56(2)(viib), as printed on the departmental page carrying the heading 'Income from other sources' and the stamp 'Year: 2025', reads: 'Provided also that the provisions of this clause shall not apply on or after the 1st day of April, 2025.' The clause itself, its first and second provisos and its Explanation remain on the statute book.
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