ANGEL TAX - ECONOMY
News: Govt. plays angel on start-up tax
What is in the news?
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Recently, Government has
proposed changes to the angel tax introduced in the Budget on start-up
investments from non-resident investors at a premium over their fair market
value (FMV).
Key takeaways from the news:
1. Wider Valuation Norms:
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The draft regime allows
five more valuation methods besides the discounted cash flow and net asset
value methods permitted as of now.
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CBDT Allows Acceptance of
Merchant Bankers' Valuation Reports within 90 days, Allowing a 10% Safe Harbor
Variation for Forex Fluctuations and Economic Indicators.
2. Exemption:
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Investments by
non-resident investors including central banks, multilateral entities, foreign
pension and endowment funds, banks and insurers, foreign portfolio investors
and entities registered with market regulator Securities and Exchange Board of
India will not attract the angel tax.
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Overseas investments into
startups recognized by the Department for Promotion of Industry and Internal
Trade (DPIIT) will not attract this tax.
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Investments by foreign
entities that have not been excluded will face the angel tax.
3. Notification of Fair Market Value:
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Government Notifies Fair
Market Value (FMV) for Investments from Non-Resident Entities, Allowing FMV
as Equity Share Price if it does not exceed Consideration and Funds are
Remitted within 90 Days.
|
Fair Market Value: It is
the stock's cash price in an open and unrestricted market when both the buyer
(e.g. an employee) and the seller (e.g. the company) have reasonable
knowledge of relevant facts. |
4. Price Matching:
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Price matching for
resident and non-resident investors would be available for investments made by
Venture Capital Funds or Specified Funds.
Back to the Basics:
Angel Tax:
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Angel tax in India refers
to the tax imposed on the excess premium
received by unlisted companies when issuing shares to angel investors or
venture capitalists.
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It is the tax that must
be paid on the funds raised by unlisted companies through the issuance of
shares in off-market transactions, if they exceed the fair market value of the
company.
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It aimed to prevent the
laundering of unaccounted money through the startup ecosystem.
Calculation:
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Under the angel tax
provision, the tax was levied on the
difference between the fair market value (FMV) of the shares issued by the
startup and the actual value of the shares.
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The FMV was determined by
a valuation method prescribed by the tax authorities.