Valuation - Merger & acquisition CBDT: Proposed changes to Rule 11UA for valuation of shares

CBDT: Proposed changes to Rule 11UA for valuation of shares

CBDT: Proposed changes to Rule 11UA for valuation of shares

CBDT: Proposed changes to Rule 11UA for valuation of shares

Central Board of Direct Taxes through Press release on 19.05.2023, Has proposed amendment to Income Tax Rule 11UA for objective of Valuation of shares .

In addition to the Discounted cash flow & Net Asset Value valuation methods, it is recommended to make five additional valuation methods available to non-resident investors. These new valuation methods will be announced in due course.

Furthermore, in the event that a notified non-resident entity provides consideration, the price of the equity shares may be treated as the Fair market value of the equity shares for both resident and non-resident investors, subject to the mention below:

  • Insofar as the consideration from such Fair market value does not exceed the Total value of consideration received from the notified entity and 
  • The value of consideration has been received within 90 days after the date of issue of the shares subject to valuation.

Other proposals include: -

  • On similar lines, price matching for non-resident and resident investors would be available with reference to investment by Specified Funds or Venture Capital Funds
  • Valuation report by the Merchant Banker would be acceptable, if it has been released at a date not more than Ninety days prior to the date of issue of shares.
  • A safe harbor of Ten percent variation in value will be allowed to account for forex fluctuations, bidding processes & variations in other economic indicators etc.
  • Draft Valuation Rules on the above lines will be shared for public comments for Ten  days, before they are notified.

CBDT notifies Exemptions to Startups on Income Tax Chargeable u/s 56(2)(viib) of Income Tax Act 

CBDT Notification Class of Persons for purposes of Section 56(2)(viib)(ii). The notification includes govt and govt related banks or investors or entities involved in insurance business subject to applicable regulations, and various organizations registered with SEBI or hospitals, charities, associated with universities or pension funds in specific countries and specified territories. Entities or organisations excluded from Income tax Section 56(2)(viib):-

  1. Entities or oorganisations or Banks involved in Insurance Business where such entity is subject to applicable regulations in the nation where it is incorporated or established or is a resident,
  2. Govt & Govt of India related investors such as sovereign wealth funds, central banks, international or MNC or agencies including entities controlled by the Govt or where direct or indirect ownership of the Govt of India is 75% or more,
  3. Any of the following organisations that are residents of one of the following nations or specifically designated areas with strong regulatory frameworks:
    • Pension Funds created or established under the law of the foreign country or specified territory,
    • Endowment Funds associated with a university, hospitals or charities,
    • Entities registered with Securities and Exchange Board of India as Category-I FPIs,
    • Broad Based Pooled Investment Fund or Vehicle where the No of investors in such fund or vehicle is more than Fifty and such fund is not a hedge fund or a fund which employs complex or diverse trading strategies.

For Startups : Start-ups are exempt from the application of section 56(2)(viib) with regard to consideration received from any person.(Covered by paragraphs 4 & 5 of a notification from the Ministry of Commerce and Industry in the Department for Promotion of Industry and Internal Trade dated February 19, 2019)

For derails of pree release you refer the link 

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