The income tax department has issued guidelines for determining the value of equity and compulsorily convertible preference shares issued by startups to both resident and non-resident investors.
As per the updated Rule 11UA of the Income Tax Rules, which became effective on September 25, the Central Board of Direct Taxes (CBDT) has specified that the valuation of compulsorily convertible preference shares (CCPS) can also be based on the fair market value of unquoted equity shares.
Additionally, the revised rules maintain the five new valuation methods outlined in the initial draft rules for assessing funds received from non-resident parties. These methods include the Comparable Company Multiple Method, Probability Weighted Expected Return Method, Option Pricing Method, Milestone Analysis Method, and Replacement Cost Method.
The angel tax, levied at a rate of 30.6 percent, is applicable when an unlisted company offers shares to an investor at a price higher than their fair market value.
