Finance Ministry’s new angel tax rules: Valuation methods and guidelines for investors notified

The angel tax, set at 30.6%, applies when unlisted companies issue shares at a price higher than their fair market value. [View in browser]( [See all newsletters]( 26 September 2023 Finance Ministry’s new angel tax rules: Valuation methods and guidelines for investors notified [The rules offer five methods for non-resident investors and employ the discounted cash flow method for resident investors. A 10% safe harbour variation is proposed to account for factors affecting unquoted equity share valuations. Additionally, specific exemptions are detailed for various investor categories.] The Finance Ministry has notified final rules outlining valuation methods for non-resident and resident investors under the new angel tax mechanism based on changes made in the Finance Act 2023. Angel tax (income tax at the rate of 30.6 per cent) is levied when an unlisted company issue shares to an investor at a price higher than its fair market value. Earlier, it was imposed only on investments made by a resident investor. But Budget 2023-24 proposed to extend angel tax even to non-resident investors from April 1, 2024. New rule prescribes five methods for non-resident investors, apart from discounted cash flow (DCF) method for resident investors, concerning valuing shares. It has been said that where any consideration is received by a company for the issue of shares from any non-resident entity notified by the Central Government, the price of the equity shares corresponding to such consideration may be taken as the fair market value (FMV) of the equity shares for resident and non-resident investors. - Read: BL Explainer. [Decoding the angel tax muddle]( On similar lines, price matching for resident and non-resident investors would be available with reference to investment by venture capital funds or specified funds. It is proposed that the valuation report by the merchant banker for this rule would be acceptable if it is of a date not more than 90 days prior to the date of issue of shares, which are the subject matter of valuation. Further, to account for forex fluctuations, bidding processes and variations in other economic indicators, etc., which may affect the valuation of the unquoted equity shares during multiple rounds of investment, it is proposed to provide a safe harbour of 10 per cent variation in value. - Read: Editorial. A[ngel tax is draconian and unfair on start-upsÂ]( Earlier, in May, the Ministry had said that Government and Government related investors such as central banks, sovereign wealth funds, international or multilateral organizations or agencies, including entities controlled by the Government or where direct or indirect ownership of the Government is 75 per cent or more will be exempted from provision of new angel taxation. Besides these banks, insurance companies, SEBI-registered Category-I Foreign Portfolio Investors, Endowment Funds associated with a university, hospitals or charities, Pension Funds and Broad-Based Pooled Investment Vehicles or Funds with 50 or more investors will also be in the exempted category. It had also clarified that new norms will not apply “to consideration received from any person by start-ups registered in Department for Promotion of Industry and Internal Trade (DPIIT).” You Might Also Like [RBI tells lenders to name debtors whose assets are possessed under Sarfaesi Act]( [Money & Banking]( [RBI tells lenders to name debtors whose assets are possessed under Sarfaesi Act]( [All-in-one affordable insurance cover, Bima Vistaar, to be rolled out soon]( [Money & Banking]( [All-in-one affordable insurance cover, Bima Vistaar, to be rolled out soon]( [Air India invests $200 million in cutting-edge pilot training facilities]( [Logistics]( [Air India invests $200 million in cutting-edge pilot training facilities]( [NPS Sizzles as AUM up 27% to ₹10.22 lakh crore]( [Money & Banking]( [NPS Sizzles as AUM up 27% to ₹10.22 lakh crore]( Stay informed Subscribe to our premium news to stay up-to-date on the in deep news in India. [arrow]( Copyright @ 2023, THG PUBLISHING PVT LTD. If you are facing any trouble in viewing this newsletter, please try [here]( Manage your newsletter subscription preferences [here]( If you do not wish to receive such emails go [here](