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
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
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