The Income Tax Department has notified rules for valuation of equity and compulsorily convertible preferred shares (CCPS) issued by startup companies to resident and non-resident investors.
The Income Tax Department has notified rules for valuation of equity and compulsorily convertible preferred shares (CCPS) issued by startup companies to resident and non-resident investors. The Central Board of Direct Taxes (CBDT) has made a provision under the change in Rule 11UA of the Income Tax Act that the valuation of compulsorily convertible preference shares can also be based on fair market value.
The 5 new valuation methods proposed in the draft rules have also been retained in the amended rules. These are…Comparable Company Multiple Method, Probability Weighted Expected Return Method, Option Pricing Method, Analysis Method, and Replacement Cost Method. Amit Aggarwal, partner, Nangia & Company LLP, said the amendment to Rule 11UA of the Indian Income Tax Act is going to bring positive changes by offering flexibility to taxpayers through multiple assessment methods.
Aggarwal said- ‘These changes provide taxpayers with a wider range of valuation methods to choose from, including internationally recognized approaches. This will help in attracting foreign investment and will bring clarity in things. Amit Maheshwari, tax partner, AKM Global, said the new angel tax rules have very well taken care of an important aspect of the CCPS valuation mechanism, which was not there earlier, as most of the investments in India by venture capital (VC) funds were made only in CCPS. Is done through route.
The CBDT had issued draft rules on valuation of financing in unlisted and unrecognized startup units in May this year. CBDT had issued this draft for the purpose of imposing income tax. This is called ‘Angel Tax’. Public comments were sought on this.
