New Delhi: The Finance Ministry has brought out final valuation rules applicable to foreign investment in unlisted shares in India to determine whether it involves any premium which is liable to any levy under angel tax provisions. .
The final rules, notified by the ministry late on Monday night, seek to provide clarity to investors and give them a set of valuation methods to choose from so as to accurately assess the value of unlisted shares, and avoid falling into the trap of angel tax. Can get help. An anti-avoidance measure that was extended to non-residents in the Finance Act 2023.
As per the Income Tax Act, share premiums received by entities without substantial public interest are taxable as ‘income from other sources’. Start-ups have been claiming that this affects their ability to raise capital as most of these institutions negotiate to reduce their stake in the company based on its future valuation. By giving flexibility in valuation methods, the government wants to ensure that the future prospects of the company are also taken into account in valuation for tax purposes.
The Income Tax (Twenty-First Amendment) Rules, 2023, which amend Rule 11UA, come into force from Monday. The rules specify that the fair value of shares shall be determined in accordance with the methods provided. Anything above, subject to the 10% safe harbor margin, will be treated as taxable premium. The amended rules introduce a mechanism to arrive at the fair market value of compulsorily convertible preference shares (CCPS) for investments from residents as well as non-resident residents.
Experts welcomed the rules, saying they provide adequate flexibility to investors. Amendments to Rule 11UA of the Indian Income Tax Act by offering flexibility to taxpayers through multiple assessment methods, simplifying consideration on assessment date, encouraging venture capital investment, facilitating investment from notified entities, providing clarity on CCPS And bring positive change by encouraging foreign investment. said Amit Agarwal, partner, Nangia & Company LLP.
Inclusion of tolerance limits for minor valuation anomalies increases efficiency and fairness in tax assessment, ultimately benefiting both taxpayers and the government, Agarwal said.
Amit Maheshwari, Tax Partner, AKM Global, said an important aspect of the CCPS valuation mechanism has been very well taken care of in the new angel tax rules, as most of the investments by venture capital funds in India are through the CCPS route. adamant.
Maheshwari said it would be interesting to see the implementation of the rules as valuation is a subjective matter and different valuation methods can be used with different approaches, which could potentially increase the risk of litigation.
“Exciting news! Mint is now on WhatsApp channels Subscribe today by clicking the link and stay updated with the latest financial information!” Click here!