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06 Jun 2024

Revised Valuation Rules for Angel Tax

06 Jun 2024
Revised Valuation Rules for Angel Tax

The Central Board of Direct Taxes (CBDT) notified amendments to Rule 11UA of the Income-tax Rules, 1962 applicable for computing angel tax on September 25, 2023 pursuant to the draft rules introduced earlier and feedback received from stakeholders and general public.

In addition to the proposed changes, the CBDT has introduced rules for valuation for Compulsorily Convertible Preference Shares (CCPS).

 

Timeline

  • May 19, 2023 – CBDT proposes changes to Angel tax rules and notify list of excluded non-resident entities
  • May 24, 2023 – The Central Government notifies entities to whom Angel tax provisions will not apply
  • September 25, 2023 – The CBDT notifies amendments to Rule 11UA

 

New Valuation methods

In addition to the existing valuation methods [i.e., Book  / Net Asset Value (NAV) and Discounted Cash Flow (DCF)] the CBDT has introduced the below options:

Price offered to Venture Capital (VC): A VC undertaking can consider the investment valuation received for the issuance of unquoted equity shares from either a VC fund, a VC company, or a specified fund (Cat I / II AIF) as a valuation benchmark for determining FMV of equity shares issued as long as it does not exceed the aggregate investment so received. Consideration from other investor should be received within a period of 90 days before or after the date of issue of shares which are the subject matter of valuation

Price offered to notified entities: The valuation of investment received by a company from notified entities can also be considered subject to conditions mentioned above

International pricing methods: For investment by non-residents, they have an additional option to determine FMV by a Merchant Banker as per any of the below 5 methods:

(i) Comparable Company Multiple Method

(ii) Probability Weighted Expected Return Method

(iii) Option Pricing Method

(iv) Milestone Analysis Method

(v) Replacement Cost Method

 

Applicability of valuation methods

Revised Valuation Rules for Angel Tax
Revised Valuation Rules for Angel Tax

1 CCPS can also be valued as per valuation of equity shares determined in line with the above methods as applicable

2 Safe Harbour available i.e. 10% upside variation is allowed

3 Date of merchant banker report not older than 90 days from date of issue of shares can be considered as valuation date

Do reach out to us at [email protected] if you need further help in understanding this or obtaining valuation reports

  The content of this document is for information purpose only and does not constitute advice or a legal opinion. It is based upon relevant law and/or facts available at that point of time and prepared with due accuracy & reliability. Readers are requested to check and refer to relevant provisions of statute, latest judicial pronouncements, circulars, clarifications etc. before acting on the basis of this write up. The possibility of other views on the subject matter cannot be ruled out. By the use of the said information, you agree that the Treelife is not responsible or liable in any manner for the authenticity, accuracy, completeness, errors or any kind of omissions in this piece of information for any action taken thereof.

Posted by
Treelife
Last updated on
Jun 06, 2024, 1:04pm

Disclaimer:

The content of this article is for information purpose only and does not constitute advice or a legal opinion and are personal views of the author. It is based upon relevant law and/or facts available at that point of time and prepared with due accuracy & reliability. Readers are requested to check and refer to relevant provisions of statute, latest judicial pronouncements, circulars, clarifications etc. before acting on the basis of the above write up. The possibility of other views on the subject matter cannot be ruled out. By the use of the said information, you agree that the Author / Treelife is not responsible or liable in any manner for the authenticity, accuracy, completeness, errors or any kind of omissions in this piece of information for any action taken thereof.

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