Expansion of Angel Tax on ‘Non-Resident’ Investors
Section 56(2)(viib) of the Income Tax Act, 1961 (‘Act’) provides that where a company in which the public are not substantially interested, receives, from any person being a resident, any consideration for issue of shares exceeding the face value of such shares, the aggregate consideration received for such shares as exceeds the fair market value (FMV) of the shares shall be chargeable to income-tax under the head ‘Income from other sources’. Thus, section 56(2)(viib) seeks to tax receipt of premium in excess of the FMV.
The mechanisms for computing the FMV has been prescribed under the Rule 11UA of the Income Tax Rules, 1962 (Rules). In case of fresh issue of shares, Rule 11UA provides for either of the below two methods of valuation, at the option of assessee:
- Break up value method (Net Asset Value with suitable replacement of valuation for specified assets) or
- Discounted Cash Flow (DCF) Method, as determined by a Merchant Banker
