Angel Tax is Gone, But Section 68 is Here: The New Funding Compliance for Startups.

One of the biggest reliefs for the Indian startup ecosystem in 2025 was the abolition of Angel Tax (Section 56(2)(viib)) effective from April 1st. Startups in Noida, Gurgaon, and Delhi can now raise funds at a premium without the fear of the excess premium being taxed as income.

But wait. If you think you no longer need a Merchant Banker Valuation Report, you are risking a heavy tax notice.

Here is why the “Valuation Report” is still your most important document in December 2025.

1. The New Weapon: Section 68 (Unexplained Cash Credits)

Even though the “Angel Tax” provision is gone, the Income Tax Department is actively using Section 68.

• The Issue: If you raise capital at a high premium (e.g., Face Value ₹10, Share Price ₹500), the Assessing Officer can ask you to justify the valuation and the source of funds.
• The Defense: A robust DCF (Discounted Cash Flow) Valuation Report is your only proof that the premium is justified by your business potential, not a method to launder money.

2. Section 56(2)(x) – The Investor’s Risk

While the Startup (issuer) is safe from Angel Tax, the Investor (recipient) can still be taxed under Section 56(2)(x) if they receive shares at a price lower than the Fair Market Value (FMV).

• Impact: A proper valuation report protects your investors from being taxed on “deemed income.”

Checklist for December Funding Rounds:

• [ ] Valuation Report: Get it dated before the share allotment date.
• [ ] Investor KYC: Maintain ITRs and bank statements of your investors (Source of Source).
• [ ] ROC Filings: Ensure MGT-14 and PAS-3 are filed within 30 days.

Raising Funds in 2026? Don’t navigate the legalities alone.

Kunal Kapoor & Associates specializes in structuring funding rounds for Startups to ensure 100% tax compliance.