Tax department notifies 'Angel Tax' rules for valuing investments in startups

New Delhi: Rules for the valuation of investments made by resident and non-resident investors in startups have been announced by the income tax department, clearing the way for the implementation of the adjustments made in the 2023-24 Budget.

The Central Board of Direct Taxes (CBDT) has amended Rule 11UA of the I-T rules to permit the use of fair market value in determining the value of compulsorily convertible preference shares (CCPS) and equity shares issued by unlisted businesses.

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The five new valuation methods for consideration received from non-residents that were proposed in the draught rules are still in effect under the amended rules: (i) the Comparable Company Multiple Method, (ii) the Probability Weighted Expected Return Method, (iii) the Option Pricing Method, (iv) the Milestone Analysis Method, and (v) the Replacement Cost Method.—Inputs from Agencies