NEW DELHI: The income tax department has proposed five more methods apart from the existing two for the valuation of shares for levying Angel Tax on gains made by Indian start-ups from issuing shares to foreign investors.
Currently, discounted cash flow (DCF) and net asset value (NAV) method is used for valuing shares issued to resident investors. The department has proposed five more methods for the valuation of shares of entities issued to foreign investors.
I-T dept has proposed to provide a ‘safe harbour’ of 10% variation in value on account of forex fluctuations, bidding processes and variations in other economic indicators, etc. A safe harbour means the tax department will accept a variation of up to 10% in valuation.
It has proposed to notify non-resident start-ups for angel tax immunity and broaden the list of excluded entity categories to cover non-resident entities with 75% government ownership, Sebi-registered FPIs and broad-based pooled investment vehicles.
“Notification (by tax department) can be seen as an attempt to assuage frayed nerves of stakeholders by acknowledging the problem statement and seeking to bring respite,” says Sandeep Jhunjhunwala, M&A tax Partner at Nangia Andersen LLP