Angel Tax Is Abolished. Rule 11UA Isn’t.

Section 56(2)(viib) of the Income Tax Act, the provision known as Angel Tax, taxed a closely held company on the excess when it issued shares above fair market value. Section 29 of the Finance (No. 2) Act, 2024 omitted it entirely, effective 1 April 2025, Assessment Year 2025-26 onward.

It was not conditioned or suspended. The clause is gone from the statute, and it is gone for every company, not only DPIIT-recognised startups. The older, narrower DPIIT exemption, immunity as long as paid-up capital and premium stayed under ₹25 crore, is now historical. Nobody needs an exemption from a provision that no longer exists.

Which one applies depends on which section is asking.

• Rule 11UA(2) is now orphaned. The sub-rule containing the DCF election, the merchant banker's certificate, and, for non-resident investors, five further methods added by CBDT Notification 81/2023 — Comparable Company Multiple, the probability-weighted expected return method, the option pricing method, the milestone analysis method, and the replacement cost method — was drafted expressly "for the purpose of section 56(2)(viib)." With that section repealed, this machinery has nowhere to attach. It remains on the books; nothing currently invokes it.
• Sections 50CA and 56(2)(x) never used it. They run on Rule 11UA(1)(c)(b), via a separate sub-rule, Rule 11UAA, for Section 50CA specifically: a plain net-asset-value formula built from the company's own balance sheet. No DCF election, no merchant banker's certificate.

Section 50CA deems the net-asset-value FMV to be the sale consideration for a seller's capital gains computation when unquoted shares transfer below it, regardless of what was actually paid.

Section 56(2)(x) taxes the recipient of unquoted shares for inadequate consideration on the shortfall against the same FMV, as income from other sources.

Neither is limited to funding rounds. Both apply to secondary transfers between existing shareholders and to related-party transfers, at whatever price the parties agree. Both were in the statute before Angel Tax was introduced, running on their own valuation formula the whole time. Repealing Section 56(2)(viib) removed the one reason anyone needed a DCF election or a merchant banker. It left the simpler formula standing.

• ESOP allotments. Shares allotted under an employee stock option scheme are taxed exclusively as a perquisite under Section 17(2), valued under Rule 3(8) via its own merchant-banker requirement. Section 56(2)(x) does not separately apply to the same allotment.
• Buy-backs. Neither Section 50CA nor Section 56(2)(x) applies to a company buying back its own shares, even below fair market value. Buy-backs are taxed under Section 115QA, a non-obstante provision displacing the ordinary capital gains machinery entirely. That lines up with company law, where a buy-back also sits outside the registered-valuer apparatus, covered in Share Buy-backs: The One Mechanism With No Valuer Mandate At All.

Run the Rule 11UA net-asset-value formula before any secondary transfer of unquoted shares, including the friendly ones. A founder selling to a co-founder or early employee at a low price, or an investor buying out another investor at a negotiated discount, is squarely inside Sections 50CA and 56(2)(x), and the exposure lands on both sides of the transaction.

None of this requires the company to be raising money. It requires only that unquoted shares change hands below the formula's fair market value.

The exposure moved from the company issuing shares to whoever transfers or receives them. The test got simpler: no DCF election, no merchant banker, just the balance sheet through a fixed formula. Simpler is not the same as safer.