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Govt proposes amendments to Angel Tax, seeks to bring foreign investors under its purview

The changes will not be applicable to startups which could mean that investments by foreign angel investors will be safe from the scope of taxation.

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On May 19, the Central Board of Direct Taxes (CBDT) proposed an introduction of five more valuation methods [besides the Discounted Cash Flow (DCF) and Net Asset Value (NAV) method that are currently being used] for shares held by non-resident investors. It also mentioned if any consideration (everything received in return for a provision of service, according to Tax Guru) is received by a company for the issue of shares, from any non-resident entity (as notified by the Central government), the price of the equity shares corresponding to such consideration may be taken as the Fair Market Value (FMV) of these shares. Rules will be issued in line with these changes and shared for public comments within 10 days, after which the changes will be notified.  Context please: To understand the proposed changes, we must first look at Finance Act 2023, passed earlier this year. This Act amended section 56(2)(viib) of the Income-tax Act, 1961, and brought non-residents into its ambit. CBDT says that it interacted with various stakeholders post the amendment and based on their inputs it proposed changes to Rule 11UA of the Income Tax Act. This rule talks about the Fair Market Value of property (other than immovable property). For the valuation of shares and securities, it says:  If the shares and securities are bought through any recognized stock exchange, the Fair Market Value of such shares and securities shall be the transaction value as recorded in the stock exchange. If bought outside of a stock exchange,…

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