The Karnataka State Chartered Accountants Association (KSCAA) submitted the suggestion on proposed changes to Rule 11UA or the Angel Tax of the Income Tax Rules, 1962. The association has stated that the implementation of the suggested will ease business.
The Finance Act, 2023, has amended the provisions of section 56(2)(viib) of the Income-tax Act, 1961 to bring the non-residents within the ambit. In this regard, the Income Tax Department through Notification (proposed) dated 26th May 2023 has invited comments to be submitted by 5th June 2023.
Read More: CBDT proposes changes to Rule 11UA on Angel Tax, Also proposes to notify Excluded Entities
The Suggestions made are:
- The new draft rules propose 5 different methods in addition to the existing methods and the new methods for valuation are proposed to be made applicable only to non-resident investors. It was requested to expand its scope to make the new method applicable to residents as well to avoid disparity in method and the price as a result.
- It was suggested that the amendment to Section 56(2)(viib) of the Income Tax Act shall be made applicable retrospectively i.e., for the F.Y. 2023-24 and not from the date of the gazetted publication of the notification.
- It was suggested that to avoid litigation over the choice of valuation method, the choice given to the Assessee should be made clearer and an express bar may be placed on the Revenue Authorities refraining from changing the method of valuation or directing them to use the same method of valuation as chosen by the Assessee in determining the FMV.
- It is also noted that the method prescribed is for equity shares, however, it is observed that the foreign investments are majorly through Compulsorily Converted Preference Shares (“CCPs”) and therefore it is requested to extend the same to Preference Shares as well.
- It was also suggested to enhance the safe harbour limit from 10% to 20%. Further, the relief of safe harbour as proposed by way of insertion of sub-rule (4) to Rule 11 UA may be extended to the proposed clause (c) and (e) of sub-rule (2) as well as sub-rule (1) of Rule 11 UA.
- The KSCAA also requested to enhance the validity period of the valuation report from 90 days to 180 days to promote ease of doing business and reduce the cost of obtaining reports/compliance.
- On the comparability of the FMV of the issues of shares to the notified non- resident entity (NNE)/Venture Capital Funds (VCF) and Specified Funds (SF), it is also suggested that instead of restricting the same to the total value of the consideration received, which appears to be illogical, the same may be extended to all the issues made during the subject year if the investment by the NNE/VCF/SF is above a prescribed limit/substantial holding.
- It was suggested to the Board that to consider Chartered Accountants and/or Registered Valuers to be eligible for the issue of a valuation report for the purposes of section 56(2)(viib) of the Income Tax Act, 1961.
- The proposed proviso to Rule 11 is not consistent with the illustration provided thereunder as the proviso refers to the period of 90 days prior to the receipt consideration from VCF while the illustration refers to the period of 90 days subsequent to the receipt consideration from VCF.
There are only 2 days to submit your comments on the proposed changes in the Rule 11UA of the Income Tax Rules, 1962. Remember to submit your proposals on or before June 5th 2023.
Read More: CBDT issues Draft of Rule 11UA (Angel Tax), Invites Comments from Public
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