The angel round is where Indian startup law changed most in the last two years. Angel tax is gone for issues from FY 2024-25 onward. SEBI rebuilt the angel-fund framework in September 2025 – accredited investors only (hard deadline 8 September 2026), per-deal tickets of ₹10 lakh to ₹25 crore, and angel funds now a distinct Category I AIF sub-class. This guide walks a founder and a first-time angel through the round as it actually works in 2026: the three ways angels invest, the instruments, the paperwork, and the tax on both sides.
The three wrappers angel money arrives in
| Route | How it works | Watch-outs |
|---|---|---|
| Direct individual | Angel subscribes personally via private placement; goes on the cap table. | Cap-table clutter if many small cheques; each foreign/repatriable-NRI angel triggers FEMA filings. |
| Syndicate / SPV | Lead angel pools cheques (often via an angel-fund platform); one entity on the cap table. | Know who actually controls the SPV vote; platform fees and carry (typically 15–20%). |
| SEBI angel fund | Category I AIF sub-class invests from pooled accredited-investor money. | From 8 Sep 2026, contributors must be accredited; per-startup ticket ₹10 lakh–₹25 crore; 1-year lock-in (6 months on third-party exit). |
What angels look for (and what they pay)
Indian angel cheques in 2026 cluster at ₹10–50 lakh per individual, ₹1–4 crore per round, at post-money valuations commonly between ₹8 crore and ₹40 crore depending on sector and founder history. The honest underwriting at this stage is 80% founder, 20% market: shipped product, early usage, and a believable wedge. Angels expect a 10–15x paper path because most of the portfolio returns nothing – which is why a ₹30 crore ask with no usage data mostly gets silence, not negotiation.
Instrument choice at angel stage
Three real options, one decision tree:
Convertible note – defer valuation entirely; needs DPIIT recognition and ₹25 lakh minimum per investor in a single tranche; converts at the next round’s price (usually with a discount and/or cap). The default for hot rounds and bridges. iSAFE – practically a CCPS (or CN) with SAFE-style commercial terms; works for smaller cheques where the CN floor is a problem. Priced CCPS – take the valuation discussion now; cleaner for cap-table maths and for angels who want certainty. If the round has foreign or repatriable-NRI money, remember the FEMA overlay: pricing certificate at or above fair value, and FC-GPR within 30 days of allotment. The comparison across all instruments is in the instrument guide and the quick answer in the chooser.
The paperwork (founder side)
An angel round is legally a private placement: board and shareholders’ special resolution (s.42 read with s.62(1)(c), Companies Act 2013), a registered valuer’s report for a priced round, offer letter PAS-4 to no more than 200 persons in the year, money into a separate bank account, allotment within 60 days (else refund within 15 days or pay 12% p.a. and have it treated as a deposit), PAS-3 to the ROC within 15 days – and the money cannot be used until PAS-3 is filed. Foreign angels add the FEMA layer: pricing certificate, KYC, FC-GPR. Miss the FEMA clock and the late-submission fee meter runs – check exposure on the LSF calculator.
Tax on the angel round (both sides), FY 2026-27
| Event | Position |
|---|---|
| Company issues shares above FMV | No angel tax – s.56(2)(viib) inapplicable from FY 2024-25 and not re-enacted in the Income-tax Act 2025. Keep the valuation report anyway: s.102 (old s.68) still demands you prove the investor’s identity, creditworthiness and genuineness, source-of-source included. |
| Angel buys BELOW fair value | Investor-side tax survives: shortfall beyond ₹50,000 taxed as other-source income (s.92, old 56(2)(x)) – mostly a secondary-purchase issue, not a fresh-subscription one. |
| Angel sells – held > 24 months | LTCG 12.5% without indexation (s.197, old 112). |
| Angel sells – held ≤ 24 months | STCG at slab rates. The 24-month cliff is worth planning around: on a ₹40 lakh gain at 30% slab, waiting past month 24 saves roughly ₹7 lakh. |
| Exit via company buyback | From 1 April 2026 (Finance Act 2026): capital gains again – consideration minus cost, 12.5% LTCG for non-promoter shareholders. (Buybacks between 1 Oct 2024 and 31 Mar 2026 were taxed as dividend at slab with the cost stranded as a capital loss.) |
| CN/CCPS converts to equity | Not a transfer (s.70, old s.47) – no tax at conversion; holding period includes the instrument period. |
NRI and foreign angels
An NRI writing angel cheques has a structural advantage: invest on a non-repatriation basis under Schedule IV and the money is treated as domestic – no pricing certificates, no FC-GPR, and convertible notes are expressly permitted on this basis (Rule 18(4), NDI Rules). The trade-off is that capital stays in India (exits land in NRO, with the USD 1 million per year remittance window). Repatriable investment keeps the exit door open but carries the full FEMA overlay. The decision framework is in our repatriation vs non-repatriation guide; investors from land-border countries need prior government approval regardless of route.
Closing an angel round?
My Cloud Accountant runs the whole close – valuation report, resolutions, PAS filings, FEMA reporting – so nothing invalidates the round later.
Talk to an expertFrequently Asked Questions
Do I need DPIIT recognition to raise an angel round?
Not for equity or CCPS. You do need it to issue convertible notes, and it unlocks the Seed Fund Scheme, the s.140 tax holiday and the ESOP deferral – so most credible startups should get recognised before raising. The 2026 definition (10 years, ₹200 crore turnover) covers almost every genuine startup.
Can I take 30 small angel cheques of ₹2 lakh each?
Legally yes via private placement (within the 200-offer annual limit), but it is usually a mistake – cap-table clutter, 30 signatures on every future resolution, and FEMA filings per foreign investor. Pool small cheques through a syndicate SPV or an angel fund instead.
What is a fair discount on a convertible note?
Indian market practice in 2026: 15–25% discount to the next round’s price, often with a valuation cap. Anything above ~30% starts functioning as a hidden down-round for founders; anything without either discount or cap gives the angel no reward for early risk.
As a new angel, should I invest directly or through a fund?
Below ₹10 lakh a cheque, funds/syndicates are now the practical route (and the only compliant fund route once accredited-only applies from 8 September 2026). Direct investing makes sense from ~₹25 lakh per deal with a 15–20 deal portfolio plan. Either way, complete accreditation first – it takes days and is now the entry ticket.
Last reviewed: July 2026. Reflects SEBI (AIF) Second Amendment Regulations 2025 + Circular of 10 September 2025 (consolidated in the AIF Master Circular, 3 June 2026), Finance (No.2) Act 2024 and the Income-tax Act 2025.