Proposal to amend Rule 11UA in respect of Section 56(2)(viib) of the Income-tax Act, 1961 (Act)

Shri Amrit Pritom Chetia, IRS

Under Secretary (TPL -II)

Central Board of Direct Taxes

Ministry of Finance

Government of India

North Block

New Delhi – 110 001

Dear Sir,

Re: Proposal to amend Rule 11UA in respect of Section 56(2)(viib) of the Income-tax Act, 1961 (Act)

This has reference to Press Release issued by Ministry of Finance on 19^th May 2022 (“Press Release”), Notification No. 29/2023 dated 24th May 2023 (“Notification”) notifying certain class or classes of entities to whom provisions of section 56(2)(viib) of the Act (“popularly known as “Angel tax” provision) do not apply and subsequently draft notification [Notification No. F.No.370142/9/2023- TPL(Part-I dated 26 May 2023)] capturing proposed amendment to Rule 11UA with respect to Angel tax provision.

In this regard, at the outset, the Bombay Chamber welcomes the proposal to amend Rule 11UA with an intent to exclude certain legitimate share subscription transactions or share issuance to certain categories of investors from the ambit of Angel tax provisions. The Bombay Chamber is also thankful to CBDT for having provided an opportunity to express our views on the subject as part of stakeholder consultation and is grateful to note that many of our suggestions (like flexibility in valuation methodology, providing safe harbour, white list of non-resident investors, etc) are accepted by CBDT. This will go a long way in boosting the investment climate in the country by removing the tax hurdle of angel tax.

However, certain proposals contained in draft Rules and Notification require a reconsideration with a view to reduce uncertainty for Foreign Direct Investment by multinationals in Indian companies as well as investment by PE/VC investors, reduce potential litigation and create conducive business atmosphere by mitigating unintended hardships to investors / taxpayers.

On behalf of Bombay Chamber, we have captured key submissions/ representations in Appendix for your consideration at the time of notifying the amended Rule 11UA. Further, we have also captured our observations and recommendations on the Notification in the enclosed Appendix.

We request you to consider the above representations favourably in order to foster the government’s agenda of ‘Tax Certainty’ and ‘Ease of Doing Business’. If any further details are needed, we will be happy to discuss and elaborate on our suggestions.

Thanking you