Section 56 (2) (vii b) in the Income Tax Act is referred to as:

Correct option is D

The correct answer is (d) Angel Tax

• Section 56 (2) (vii b) of the Income Tax Act refers to Angel Tax, which is a provision to address investments made by angel investors in early-stage startups.

• Angel Tax is applicable when a startup company receives investments that exceed its fair market value. The excess amount is considered as income and is taxed under this provision.

• This tax was introduced to curb money laundering through inflated valuations of startups but has been a point of concern for genuine investors and startups.

Information Booster:
• The Angel Tax provision applies to investments made by angel investors in startups, particularly those involved in technology and innovation.
• The taxation applies if the amount received by the company from an investor exceeds the fair market value of the shares issued, and this excess is considered income and taxed.
• This provision is often seen as a hindrance to early-stage funding, leading to demands for its revision or exemption.

Additional Information:
• Angel Tax applies specifically to private limited companies and their investments, but startup companies that are recognized by the Department for Promotion of Industry and Internal Trade (DPIIT) may be exempt from this tax.
• A) Normal Investments refer to regular investment activities and are not connected to Angel Tax.
• B) Angel Fund is a term related to investment funds that focus on investing in early-stage businesses, but not directly related to the Angel Tax.
• C) Normal Taxing refers to the general taxation rules under the Income Tax Act and does not specifically cover Angel Tax.