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India: CBDT Proposed changes to Rule 11UA in respect of ANGEL TAX


India: CBDT Proposed changes to Rule 11UA in respect of ANGEL TAX

India: CBDT Proposed changes to Rule 11UA in respect of ANGEL TAX

Click here to read the Press release


The Central Board of Direct Taxes (CBDT) has recently made significant amendments to Rule 11UA.

1. Expansion of Valuation Methods

CBDT, through a Press Release, proposes the inclusion of five new valuation methods for non-resident investors. This expansion aims to provide more options and flexibility in determining the Fair Market Value (FMV) of equity shares. The additional valuation methods will complement the existing DCF and NAV methods, allowing investors to choose the most suitable approach for their specific circumstances.

2. Calculation of FMV for Non-Resident Investors

The announcement states that when a company receives consideration for the issuance of shares from a non-resident entity notified by the Central Government, the price of the corresponding equity shares may be taken as the FMV for both resident and non-resident investors. However, certain conditions must be met:

  • The consideration from the FMV should not exceed the aggregate consideration received from the notified entity and
  • The consideration must be received by the company from the notified entity within ninety days of the date of share issuance, which is subject to valuation.

This provision ensures a standardized approach to determining the FMV while considering investments from non-resident entities.

3. Price Matching for Venture Capital Funds and Specified Funds

In a move towards parity, the CBDT proposes that price matching for resident and non-resident investors should also apply to investments made by Venture Capital Funds and Specified Funds. This measure aims to create a level playing field and equal treatment for all investors, regardless of their residential status.

4. Acceptance of Valuation Report by Merchant Banker

The CBDT has indicated that the valuation report prepared by a Merchant Banker will be deemed acceptable if it is dated no more than ninety days prior to the date of share issuance. This provision streamlines the process and provides a clear timeframe for the validity of the valuation report. Additionally, the CBDT has introduced a safe harbor provision of 10% to account for foreign exchange fluctuations, bidding processes, and variations in other economic indicators.

5. Draft Rules and Public Comments

The Draft Rules will be open for public comments for a period of ten days. This collaborative approach allows industry experts, investors, and other interested parties to provide their feedback and insights before the finalization of the rules.

6. Exemptions for Startups

For startups covered under paragraphs 4 and 5 of the Notification dated 19.2.2019 issued by the Ministry of Commerce and Industry in the Department for Promotion of Industry and Internal Trade (DPIIT), provisions of Section 56(2)(viib) shall not apply.

7. Entities Excluded from Section 56(2)(viib)

Certain entities are excluded from the applicability of Section 56(2)(viib). These include Government and government-related investors., Banks or entities involved in the insurance business, and other entities resident of certain countries/ territories having a robust regulatory framework like Entities registered with SEBI as Category-I Foreign Portfolio Investors, Endowment funds associated with universities, hospitals, or charities, Pension funds created or established under the law etc.


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