New tax norms for foreign investment in unlisted cos
I-T Dept to come out with modified valuation norms for ascertaining fair market value (FMV) of shares of unlisted companies
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New Delhi: The Income-Tax (I-T) Department is likely to come out with modified valuation rules under the I-T Act for ascertaining the fair market value (FMV) of shares of unlisted companies for the purpose of levying tax on non-resident investments, an official said.
The Finance Bill-2023 has proposed amending Section 56(2)(viib) of the I-T Act, thereby bringing overseas investment in unlisted closely held companies, excepting DPIIT-recognised startups, under the tax net. The official said that amendments are needed as I-T Act and FEMA provide different methodologies for calculating the FMV of shares of unlisted companies.
“Rule 11UA of I-T rules will be re-prescribed taking into account the concerns expressed by stakeholders to harmonise it with the FEMA regulations,” the official said.
Rule 11UA deals with determination of FMV of assets, other than immovable property. Under the existing norms, only investments by domestic investors or residents in closely held companies were taxed over and above the fair market value. This was commonly referred to as angel tax.
