Angel tax India: Centre notifies final angel tax rules, retains all five valuation methodology from draft rules

The centre on Tuesday notified Angel Tax rules retaining all the five valuation methodology from the draft rules and introducing a mechanism for arriving at the fair market value of Compulsorily Convertible Preference Shares (CCPS) for investment from residents as well as non-resident residents.

It also has provided a headroom to include for minor valuation discrepancies taking into account any inconvenience to the investors. The new rules will be effective from September 25.

“The amendments to Rule 11UA of the Indian Income Tax Act bring positive changes by offering taxpayers flexibility through multiple valuation methods, simplifying the valuation date consideration, incentivizing venture capital investments, facilitating investments from notified entities, providing clarity on compulsorily convertible preference shares, and encouraging foreign investments,” Amit Agarwal, Partner, Nangia & Co LLP said.

“The inclusion of a tolerance threshold for minor valuation discrepancies further enhances efficiency and fairness in tax assessments, ultimately benefiting both taxpayers and the government,” Agarwal added.

Angel tax at the rate of 30.6 per cent is levied when an unlisted company issues shares to an investor at a price higher than its fair market value.

Earlier, only investments made by a resident investor used to attract angel tax, however it was extended to non-resident investors also in the current budget.

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