Thứ Hai, Tháng Sáu 5, 2023
HomeBusinessThe IT Department proposes 5 investment valuation methods for startups

The IT Department proposes 5 investment valuation methods for startups

The Income Tax Department on Friday proposed five new valuation methods for calculating the Angel Tax under a new mechanism for non-resident investors in startups. The ministry has said that regulated investment institutions from 21 countries/jurisdiction and accredited startups will be exempted from the new mechanism.

The new mechanism will take effect from April 1, 2024. Stakeholders can comment on the draft by June.

According to the draft, the new valuation methods include the Multi-Company Comparison Method, the Probabilistically Weighted Expected Return Method, the Options Pricing Method, the Milestone Analysis Method, and the Expense Method. replacement fee. These methods will differ from the two existing methods — Discounted Cash Flow (DCF) and Net Asset Value (NAV). The department has said that the Merchant Banker’s valuation report will be accepted.

It is also proposed that a valuation report prepared by a commercial banker for the purposes of this rule be accepted if it is dated no more than 90 days prior to the issue date of the shares, which is subject to determination. price.

Angel tax (income tax at 30.6 percent) is charged when an unlisted company issues shares to investors at a price above fair market value. Previously, it was only applicable to investments made by a resident investor. But Budget 2023-24 proposed extending the angel tax even to non-resident investors.

The draft also proposes that in case the startup receives consideration from investors who are residents as well as non-residents, the fair market value for unlisted shares will be calculated according to the formula, that is (AL)x [PV/PE].

Here, A is the book value of the assets on the balance sheet reduced by any tax paid either as deductions or collection at source or as advance tax reduced by the amount of tax claimed for a refund under the Income Tax Act and any amount shown in the balance sheet as an asset including the amount of unallocated deferred expense that does not represent the value of of any asset L refers to the book value of the liabilities shown in the balance sheet. PE means the total amount of equity paid out and PV is the paid value of those equity shares.

On Wednesday, the government issued two notices stipulating a list of entities from designated countries to be exempted. These organizations include the government and government-related investors such as central banks, sovereign wealth funds, international or multilateral institutions or agencies including government-controlled entities. control with 75% or more equity. In addition to these banks or insurance companies, institutions registered with the Securities and Exchange Commission of India as Class I foreign portfolio investors, endowments affiliated with University, hospital or charities and pension funds will be exempt.

Another type of exempt entity is broad-based pooled investment vehicles or funds with more than 50 investors and the fund is not a hedge fund or a fund that employs diversified trading strategies, or complicated.

Exempt entities need to be incorporated in any of the 21 designated countries – Australia, Austria, Belgium, Canada, Czech Republic, Denmark, Finland, France, Germany, Iceland, Israel, Italy, Japan, Korea, New Zealand, Norway, Russia, Spain, Sweden, UK and USA.

By another announcement, the Department has revised its 2019 notification mechanism to facilitate exemptions for DPIIT (Department of Internal Trade and Investment Promotion) – recognized startups from tax regulation. new angel.

Commenting on the draft, Amit Agrawal, Partner of Nangia Anderson said: “These amendments are likely to instill confidence in foreign investors, reassuring them of India’s commitment to creating a investor-friendly ecosystem. Harmonization of pricing rules with internationally accepted valuation methods indicates the alignment of India’s tax pricing rules with global best practices in tax frameworks and regulations.

“New valuation methods have the potential to bridge the gap between the valuation rules outlined in the FEMA regulations and the Income Tax Rule. Implementing consistent pricing standards can improve transparency and reduce ambiguity, ultimately facilitating smoother cross-border transactions,” he said.

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