ENIGMA

ENIGMA OF
OF ANGEL
ANGEL
TAX
TAX PROVISIONS
PROVISIONS

Ankit Bhasin
Associate Partner
Impact of Section 56(2)(viib)
Amendment on Non-
Resident Investors
When the Finance Act, 2023 amended Section 56(2)(viib) of the
Income Tax Act, 1961 to make the angel tax provisions
applicable to share application / premium received from non-
resident investors as well, concerns were raised by several
overseas stakeholders, who often obtain valuation reports at a
discount to FMV in order to be able to exercise their anti-
dilution price protection rights in case of down rounds.
CBDT provides relief
for non-resident
investors
Post that, the Central Board of Direct Taxes (CBDT)
issued two notifications on May 24, 2023 to provide
some welcome relief by: (a) notifying certain categories
of non-residents from 21 countries whose investment
would not be subject to angel tax and (b) extending the
current reliefs for investment in DPIIT registered start-
ups to non-residents as well
 CBDT Publishes Draft
Amendments to Rule 11UA of
Income Tax Rules, 1962

Further, on May 26, 2023, the CBDT published draft amendments to Rule 11UA
of the Income Tax Rules, 1962, which inter alia provide for the following:
 Five New Valuation
Methods for Equity
Shares
Five more valuation methods
have been proposed for issue
of equity shares to non-
resident investors, i.e.
Comparable Company
Multiple Method, Probability
Weighted Expected Return
Method, Option Pricing
Method, Milestone Analysis
Method and Replacement
Cost Methods;
Price Matching Facility
for Resident and Non-
Resident Investors
Proposed
Price matching facility for
both resident and non-
resident investors has been
proposed, which provides
that the price at which equity
shares are issued to notified
non-resident entities will be
adopted as FMV for the
purposes of investments by
both resident and non-
resident investors;
Proposed change in
Rule 11UA
Currently, Rule 11UA requires
a merchant banker’s report
through DCF valuation as on
the date of issue of shares,
which period has been
proposed to be changed to
up to 90 days prior to the
date of issue of equity shares.
DRAFT RULES
FOR PUBLIC
COMMENTS
The Draft Rules had sought public
comments till June 5, pursuant to which
various representations have been
made. Watch this space for updates on
this topic.
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