The Finance Act 2023 has brought about an important amendment regarding the taxation of considerations received from non-resident investors in excess of Fair Market Value (FMV) for shares issued by Indian resident entities. Following interactions with stakeholders, the valuation rules (Rule 11UA) are now proposed to be modified. Let's delve into the key proposals and their implications.
Key Proposals:
Additional Valuation Methods: The modification proposes the introduction of five additional valuation methods for non-resident investors, expanding the options beyond the existing Discounted Cash Flow (DCF) and Net Asset Value (NAV) methods.
Consideration Price Deemed as FMV: The proposed modification suggests deeming the consideration price raised from notified non-resident entities as the FMV for both residents and non-residents, subject to certain conditions.
Timeliness of Valuation Report: According to the modification, the valuation report obtained from the Merchant Banker should not be more than 90 days prior to the date of share issuance.
Safe Harbor Provision: A safe harbor provision of 10% is introduced to account for forex fluctuations, bidding processes, variations in other economic indicators, and other factors.
Exempted Entities: The modification outlines a list of exempted entities, including Foreign Portfolio Investors (FPIs), sovereign wealth funds, pension funds, and pooling vehicles with more than 50 investors. Additionally, DPIIT-recognized start-ups are exempted from the applicability of these provisions.
Public Consultation:
The draft rules will be published for public comments, and it is crucial to carefully review the fine print of the draft rules once available. Understanding the impact of these modifications is essential as the government acknowledges the far-reaching implications of the amendment proposed in the Finance Act 2023.
Source: The information provided is sourced from the press release dated 19th May 2023 by the Central Board of Direct Taxes.
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