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 the provision entirely, effective 1 April 2025, Assessment Year 2025-26 onward.

• This was not narrowed, conditioned, or suspended. The clause was deleted from the statute.
• It applies to every company, not only DPIIT-recognised startups. The older, narrower DPIIT exemption, immunity from Section 56(2)(viib) as long as paid-up capital and premium stayed under ₹25 crore, is now effectively historical. Nobody needs an exemption from a provision that no longer exists.

Rule 11UA is not one method gated behind a merchant banker. It is a family of sub-rules, and which one applies depends on which section is asking.

• Rule 11UA(2), the sub-rule containing the DCF election, the merchant banker's certificate, and, for non-resident investors specifically, five further methods added by CBDT Notification 81/2023 (Comparable Company Multiple Method, 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 With that section repealed, this machinery has nowhere left to attach. It remains on the books, but nothing currently invokes it.
• Section 50CA and Section 56(2)(x) never used Rule 11UA(2) at all. 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. Anyone applying the formula correctly can produce a number that stands up.

Under this formula, Section 50CA deems that 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 related-party transfers, at whatever price the parties agree.

Both provisions were already 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 in the first place. It left the simpler formula standing, doing what it always did.

Rule 11UA's reach is wide, but it is not universal. Two transactions that look like obvious candidates are specifically excluded.

• 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. Taxing it twice under two different provisions was never the intent.
• Buy-backs. Neither Section 50CA nor Section 56(2)(x) applies to a company buying back its own shares, even at a price below fair market value. Buy-backs are taxed under Section 115QA, a non-obstante provision that displaces the ordinary capital gains machinery entirely. This lines up with what company law already does here: as covered in Share Buy-backs: The One Mechanism With No Valuer Mandate At All, a buy-back sits outside the registered-valuer apparatus on the company-law side too. Now confirmed on the income-tax side as well.

A founder or board that hears "Angel Tax is abolished" and concludes valuations are no longer a startup's problem is missing where the exposure actually sits now.

• A founder selling shares to a co-founder or early employee at a friendly, low price is a secondary transfer, not a funding round, and it is still squarely within Section 50CA and 56(2)(x).
• An investor buying out another investor's stake at a negotiated discount faces the same exposure on both sides of the transaction.
• None of this requires the company to be raising money. It only requires unquoted shares changing hands below Rule 11UA fair market value.

The exposure moved from the company issuing shares to whoever is transferring or receiving them. It also got simpler to test: no DCF election, no merchant banker, just the company's own balance sheet run through a fixed formula. That does not make it any less real to get wrong.