IT dept to come out with modified valuation norms for taxing foreign investments in unlisted companies

Income Tax

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Feb 13, 2023

The Income Tax Department is likely to come out with modified valuation rules under the IT Act for ascertaining the fair market value (FMV) of shares of unlisted companies for the purpose of levying tax on non-resident investments, an official said.

The Finance Bill, 2023 has proposed amending Section 56(2)(viib) of the IT Act, thereby bringing overseas investment in unlisted closely held companies, excepting DPIIT-recognised startups, under the tax net.

The official said that amendments are needed as IT Act and FEMA provide different methodologies for calculating the FMV of shares of unlisted companies.

"Rule 11UA of IT rules will be re-prescribed taking into account the concerns expressed by stakeholders to harmonise it with the FEMA regulations," the official told PTI.

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