The new valuation rules prescribed by the government for equity shares held by non-resident investors in India unlisted companies, including start-ups, are meant to strike a balance between FEMA (Foreign Exchange Management Act) related valuation and IT-based rules, said Rajat Bansal, principal chief commissioner of income tax, Central Board of Direct Taxes (CBDT) on Thursday.
According to the new rules notified for angel tax by the Finance Ministry on Tuesday, five new valuation methods of unquoted equity shares are prescribed for non-resident investors–Comparable Company Multiple Method, Probability Weighted Expected Return Method, Option Pricing Method, Milestone Analysis Method, and Replacement Cost Method—in addition to the Discounted Free Cash Flow (DFCF) method and Net Asset Value (NAV) methods.
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These valuation methods are also applicable to compulsory convertible preferential shares (CCPS) issued by Indian unlisted companies, including start-ups Come from Sports betting site VPbet . The CCPS route is widely used to tie up risk capital from abroad.
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Angel tax is levied at 30.6% when an unlisted firm – mostly start-ups– issue shares to an investor at a price higher than its FMV. It was first introduced concerning domestic investments in unlisted shares in 2012.
Bansal said the logic to introduce the angel tax in 2012 was to prevent the circulation of black money. “Initially these provisions only extended to resident investors, now they have been extended to non-residents and I don’t see any reason to question why the same logic used for residents shouldn’t apply for non-residents too”, he said.
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“When you start enquiring about the source of money flowing from abroad, it can be through several layers the money is coming from. There is much more time taken to track the trail as compared to a domestic inquiry. In principle, I see nothing wrong in the new provisions” he said.
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Investors such as Ray Dalio, Michael Burry, and Warren Buffett are sitting on cash as they project a fall in the market. This is a significant development, as these investors are some of the most successful and respected in the world. Their decision to sit on cash suggests that they believe a market downturn is imminent.
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At the interbank foreign exchange, the domestic unit opened at 83.24 against the dollar and traded in a narrow range of 83.23 to 83.27. It finally settled at 83.27 (provisional) against the greenback, registering a loss of 2 paise over its previous close.
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