Angel Tax: CBDT notified new angel tax rules regarding valuation of investments in startup companies.

Angel Tax: CBDT notified new angel tax rules regarding valuation of investments in startup companies.

CBDT Angel Tax Notification: The Central Board of Direct Taxes (CBDT) has today notified new angel tax rules for startup companies. Today, new rules have been notified for the valuation of equity and compulsorily convertible preference shares (CCPS) issued to resident and non-resident investors of startup companies. 

CBDT has made a provision under the change in Rule 11UA of the Income Tax Act that the valuation of Compulsory Convertible Preferable Share can also be based on fair market value.

Five new valuation methods proposed in the draft of the amended rules have also been retained. These are-

  1. Company Multiple Method
  2. Probability Weighted Expected Return Method
  3. Option Pricing Method,
  4. Milestone Analysis Method
  5. Replacement Cost Method

Today, Income Tax India has also given information about this through a post on social media platform"twitter-tweet">

CBDT notifies changes to Rule 11UA in respect of ANGEL TAX.
Notification No. 81/2023 dated 25th September, 2023 issued.

➡️Suggestions & feedback were invited from stakeholders & general public on the Draft Rule 11UA in May, 2023.

➡️Taking into consideration suggestions…

— Income Tax India (@IncomeTaxIndia) September 26, 2023

In a statement to PTI, Amit Maheshwari, Tax Partner, AKM Global, said that the new angel tax rules have very well taken care of an important aspect of the CCPS valuation mechanism, which was not there earlier, because venture capital (VC). Most of the investments in India by funds are made only through the CCPS route.

CBDT had issued draft rules on valuation of funding in non-listed and unrecognized startup units in May this year. CBDT had issued these drafts for the purpose of imposing income tax. This is called ‘Angel Tax’. Public comments were sought on this.

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