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MoF: Submission on draft amendments to valuation methods for start-ups under Rule 11UA of Income Tax Rules
MoF: Submission on draft amendments to valuation methods for start-ups under Rule 11UA of Income Tax Rules

June 13, 2023

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On June 5, 2023, Nasscom submitted comments to Ministry of Finance (MoF) in respect of draft amendments proposed to valuation methods for start-ups under Rule 11UA of Income Tax Rules, 1962 (IT Rules). Please find the proposed amendments here, and our blog summarising the amendments here.

In our feedback, we highlighted the following to MoF:

  1. Notifications released by MoF on section 56(2)(viib) of Income Tax Act, 1961:
  1. We have requested the government to add Netherlands, UAE and Singapore to the list of safe-harbour countries, given the significance of foreign investments coming from these jurisdictions. Also, India has Double Taxation Avoidance Agreements (DTAA) with all of them which provides measures to curb round-tripping and money laundering. A more principle-based approach may be to review the DTAA’s and address any possible gaps in these so that the government has sufficient confidence that investments from these countries are not a conduit for money laundering.
  2. Investments made by foreign group companies into an Indian group company should be exempted from the applicability of angel tax.
  3. Government should frame Standard Operating Procedures in consultation with stakeholders, to be followed by tax officers in case there are deviations in projections. The SOP should provide guidance to tax officers on additional documents that must be asked for in case of deviation, to gauge the applicability of angel tax.
  1. Proposed valuation methods for start-ups under Rule 11UA of IT Rules: We have requested the government to:
  1. Extend the applicability of amended Rule 11UA from April 1, 2023 (i.e., from the date of amendment of S.56(2)(viib) of IT Act).
  2. Extend the applicability of additional valuation methods for investments made by residents as well.
  3. Add the term ‘any other method as may be notified by the Government from time to time’ should be added to the permissible valuation methods under Rule 11UA of IT Rules.
  4. Extend the applicability of these amendments to issuance of preference shares also.
  1. We have also requested the government to clarify the applicability of angel tax on investment received from any other investor in excess of the aggregate investment received from VC fund.

Detailed submission is attached for your reference. For more information, kindly write to tejasvi@nasscom.in and garima@nasscom.in with a copy to policy@nasscom.in.  


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20230605-11UAamendments-nasscom.pdf

Tejasvi

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