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The Income Tax Department will soon notify rules specifying the class of investors and norm of valuation for implementation of the Budget provision of taxing foreign investment in unlisted companies. The modified valuation rules would provide for ascertaining the fair market value (FMV) of shares of unlisted companies to levy tax on non-resident investments, an official said. The Finance Act, 2023, has amended Section 56 (2)(viib) of the I-T Act, thereby bringing overseas investment in unlist
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FAQ :
The Income Tax Department will soon notify the modified valuation rules.
The rules aim to specify the class of investors and the method of valuation for taxing foreign investments in unlisted companies, ensuring fair market value is correctly ascertained.
Overseas investments in unlisted closely held companies, except for DPIIT-recognised startups, will be brought under the tax net.
No tax will be levied on investments in startups that meet the prescribed norms and are recognised by the Department for Promotion of Industry and Internal Trade (DPIIT).
The amendments are necessary because the Income Tax Act and FEMA provide different methodologies for calculating the FMV of shares in unlisted companies.
Even if shares are issued at a price above the FMV calculated under FEMA but below the FMV calculated under income tax, the difference will be taxed in the hands of the recipient company.
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