AI Drafter 
TaxTMI 
TaxTMI 
Now Sec 56(viib) has been omitted. However, for past periods, it is important to understand the jurisprudence. Vide Notification No. 29/2023 dated 24th May, three categories of entities are notified to have been retrospectively exempted from Sec 56(viib) since 1st April 2023. These are those entities which are registered with Sebi as Category I FPI, Endowment Funds, Pension Funds and broad-based pooled investment vehicles, which are residents of 21 specified nations, including the US, UK, Australia, Germany and Spain. Important is that top jurisdictions like Singapore, Mauritius and UAE are excluded from the specified nations list - these three countries together constitute over 50% FDI in India. Notification No. 30/2023 exempts start-up companies from the angel tax provision if the start-up company fulfils the conditions specified by DPIIT in para 4 of its Notification No. G.S.R 127(E) dated 19 February 2019 and files a self-declaration to that effect. The exemption is applicable where a start-up company issue shares for a consideration at a premium to any person (whether resident or non-resident). The said Notification comes into force retrospectively from 1 April 2023. It supersedes the earlier CBDT Notification No. 13/2019 which granted similar exemption to start-ups for issue of shares to resident investors. It is pertinent to note that FDI from corporates other than start-ups continue to be under Angel tax Ambit. Most foreign companies have subsidiaries in India wherein capital is introduced from the foreign holding company. All these investments would come within the ambit of Section 56(2)(viib). Now the draft Rules u/r 11UA have been issued for public comments too where 5 new valuation methods have been proposed for non-resident investors. The methods being - Comparable Company Multiple Method; Probability Weighted Expected Return Method; Option Pricing Method; Milestone Analysis Method; and Replacement Cost Methods. Further 10% Safe harbor limit is introduced. Hence where the price at which shares are issued is higher than the value determined per Rule 11UA, but the difference doesn't exceed 10%, the issue price will be held as the fair market value. Suggestions/Comments have been invited from stakeholders & general public on the draft rules, which can be sent to [email protected] latest by 5th June, 2023.
Angel Tax exemptions notified [Sec 56 of ITA'61 - Sec 92 of ITA'25]
Vivek Jalan
Angel tax exemptions for specified foreign investors and start-ups expand retrospective relief, with draft valuation rules proposing new methods and a safe harbour. Retrospective exemptions have been notified from the angel tax framework for specified foreign investors and for start-up companies meeting prescribed conditions and filing the required self-declaration. The exemptions operate from 1 April 2023, while corporate foreign direct investment outside the exempted categories remains within the angel tax ambit. Draft valuation rules for non-resident investors also propose five methods and a 10% safe-harbour tolerance where the issue price marginally exceeds fair market value. (AI Summary)