New tax norms likely for foreign investment in unlisted companies

NEW DELHI: The income tax department is likely to come out with modified valuation rules under the I-T Act for ascertaining the fair market value (FMV) of shares of unlisted companies for levying tax on non-resident investments, an official said. The Finance Bill, 2023 has proposed amending a section of the I-T Act, thereby bringing overseas investment in unlisted closely held companies, excepting DPIIT-recognised startups, under the tax net.
The official said amendments are needed as I-T Act and FEMA provide different methodologies for calculating the FMV.
Currently, only investments by domestic investors or residents in closely held companies were taxed over the fair market value. This was commonly referred to as angel tax.