Angel tax is gone, with two footnotes
The headline is genuinely good. Angel tax was the charge under which a closely-held company, a startup, was taxed on the share premium it received from investors above the shares' fair value. It was abolished from the 2025-26 financial year, and the abolition applies to all investors, resident and non-resident alike, so a premium round funded by an NRI no longer risks that tax landing on the startup.
Two footnotes matter for an NRI, though. First, the abolition is recent, and for a short window before it, angel tax had been extended to non-resident investors, so a premium investment by an NRI in the two years before abolition could have triggered it, and a legacy assessment for those years can still be raised. Second, and more importantly going forward, abolishing the charge on the startup did not remove the mirror-image rule on the investor.
The investor trap and the FEMA floor
The trap that remains is on your side. If you as the investor are issued shares for less than their fair value, the discount, the amount by which the fair value exceeds what you paid, above ₹50,000, is taxable in your hands as income under Section 56(2)(x). So a bargain allotment is not a free lunch; the built-in gain is taxed on you at the point of issue. This is the opposite side of the coin from the abolished charge on the company.
On top of the tax there is an exchange-control floor that a non-resident cannot ignore. Under the rules for non-resident investment, an NRI cannot subscribe to unlisted Indian shares below their fair value, which must be certified by a qualified valuer using an accepted method. So a below-value allotment to an NRI is a breach of those rules quite apart from the tax, which means the pricing has to be right on both counts. Premium rounds are often done through instruments like convertible preference shares or convertible notes, which have their own conditions. A practising CA prices the investment to satisfy both the tax and the exchange-control floor, handles any legacy angel-tax assessment, and structures the instrument correctly.