Team Blitz India
NEW DELHI: The Income Tax Department will soon notify rules specifying the class of investors and norm of valuation for implementation of the Budget provision of taxing foreign investment in unlisted companies.
The modified valuation rules would provide for ascertaining the fair market value (FMV) of shares of unlisted companies to levy tax on non-resident investments, an official said on April 27.
The Finance Act, 2023, has amended Section 56 (2)(viib) of the I-T Act, thereby bringing overseas investment in unlisted closely held companies, except DPIIT-recognised startups, under the tax net.
The amendments are needed as I-T Act and FEMA provide different methodologies for calculating the FMV of shares of unlisted companies.
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 an angel tax.
The Finance Act, 2023, has said that such investments over and above the FMV will be taxed irrespective of whether the investor is a resident or non-resident. The provisions would come into effect from April 1.
