HomeIndiaIT department invites comments on draft rules for valuing investment in start-ups

IT department invites comments on draft rules for valuing investment in start-ups

The income tax department on Friday invited interested parties to comment on the rules for valuing investment by non-residents in unlisted start-ups.

The Central Board of Direct Taxes (CBDT) has issued a draft notice requesting comments on draft rule 11AU of the Income Tax Rules 1962, relating to the method of calculating fair value (FMV) of unlisted capital shares for the purpose of section 56(2)(viib) of the Income Tax Act 1961.

Suggestions/comments from stakeholders and the general public on the draft rules have been invited and can be sent to ustpl2@nic.in, no later than June 5, 2023, the CBDT tweeted.

The rules would take effect from April 1, 2023.

The CBDT was expected to present valuation guidelines for valuing non-resident investment in unrecognized start-ups for the purpose of collecting income tax.

Under existing rules, only investments by domestic or resident investors in closely held corporations were subject to tax above fair market value. This is commonly known as an angel tax.

The 2023 Finance Law has said that such investments above the FMV will be taxable regardless of whether the investor is a resident or a non-resident.

Following the proposed amendments in the Finance Bill, concerns have been raised about the methodology for calculating fair market value under two different laws.

The CBDT has already notified 21 countries, including the US, UK and France, from where non-resident investment in unlisted Indian startups will not attract angel tax.

The list, however, excludes investment from countries such as Singapore, the Netherlands and Mauritius.

In the budget, the government had attracted foreign investment in privately held unlisted companies, except for DPIIT-recognized start-ups, under the Angel Tax network.

After that, the startup and venture capital industry sought the exemption for certain classes of foreign investors.

On May 24, the CBDT notified investor classes that they would not be subject to the Angel Tax provision.

Excluded entities include those registered with Sebi as Category I FPIs, endowment funds, pension funds and broad-based pooled investment vehicles, which are residents of 21 specified countries, including the US, UK, Australia, Germany and Spain, according to the notification. .

The other nations mentioned in the notification are Austria, Canada, the Czech Republic, Belgium, Denmark, Finland, Israel, Italy, Iceland, Japan, Korea, Russia, Norway, New Zealand, and Sweden.

(Only the headline and image in this report may have been modified by Business Standard staff; all other content is auto-generated from a syndicated feed.)

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