For the purpose of taxing non-resident investors, the Income Tax Department is set to release updated valuation standards under the Income Tax Act to determine the fair market value (FMV) of shares of unlisted companies.
The department of income taxes is getting ready for this. According to a representative of the Income Tax Department, this information is necessary because the FEMA statute and the Income Tax Act both provide distinct techniques for determining the FMV of unlisted enterprises. Speaking to PTI, the representative said:
Rule 11UA of the Income Tax Act, which deals with determining the FMV of property other than immovable property, will be redrafted to address stakeholder concerns and be in compliance with the Foreign Exchange Management Act (FEMA).
Amendment proposed
In the Finance Bill, 2023, amendment has been proposed in section 56(2) of the Income Tax Act. This will bring foreign investment into the tax net in unlisted companies, except startups recognized by the Department for Promotion of Investment and Internal Trade (DPIIT).
No tax on startup
No tax will be levied on investments in startups that are DPIIT-accredited and meet the prescribed criteria, PTI reported. Startups will get a lot of convenience from this. At the same time, according to the current rules, only investments made by domestic investors or residents in companies with centralized control are taxed on the fair market value
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