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Overview The Finance Act, 2023 significantly expanded the scope of Indias angel tax provisions under Section 56(2)(viib) of the Income-tax Act by extending its applicability to investments received from non-resident investors in unlisted companies. While the amendment aimed to curb circulation of u
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After the Finance Act 2023, Section 56(2)(viib) now applies to consideration received by unlisted companies from non-resident investors for issuing shares, if this consideration exceeds the Fair Market Value (FMV) of the shares. Such excess consideration is chargeable to income tax.
The extension aimed to prevent the generation and circulation of unaccounted money through inflated share premiums received from non-resident investors in closely held companies.
Relief measures include a 10% safe harbor for valuation, additional internationally accepted valuation methodologies for non-resident investments, price matching provisions, flexibility in merchant banker valuation reports, and specific valuation mechanisms for CCPS. Exemptions were also provided for specified foreign investors and DPIIT-recognized startups.
Yes, certain entities like Category-I FPIs, Endowment Funds, Pension Funds, and broad-based pooled investment vehicles from 21 specified nations are exempted. Additionally, DPIIT-recognized startups fulfilling specific conditions are also exempted.
The amended rules provide five new valuation methods for non-resident investments: Comparable Company Multiple Method, Probability Weighted Expected Return Method, Option Pricing Method, Milestone Analysis Method, and Replacement Cost Methods.
The amended rules are applicable to all cases of issue of unquoted equity shares on or after September 25, 2023.
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