Notification -- CBDT notified substituted Rule 11UA for valuation of fair market value of unquoted equity shares and compulsorily convertible preference shares. Assessee may select/choose one out of five method given in Rule.
“1. Short title and
commencement.– (1) These rules may be called the Income-tax (Twenty first
Amendment), Rules, 2023. (2) They shall come into force from the date of
publication of the notification in the Official Gazette,
2. In the Income-tax Rules,
1962, in rule 11UA, for sub-rule (2), the following sub-rules shall be
substituted, namely:–
'(2) Notwithstanding anything contained in
sub-clause (b) or sub-clause (c), as the case may be, of clause (c) of sub-rule
(1):– (A) the fair market value of unquoted equity shares for the purposes of
sub-clause (i) of clause (a) of the Explanation to clause (viib) of sub-section
(2) of section 56 shall be the value, on the valuation date, of such unquoted
equity shares, as shall be determined under sub-clause (a), sub-clause (b),
sub-clause (c) or subclause (e), at the option of the assessee, where the
consideration received by the assessee is from a resident ; and under
sub-clauses (a) to (e) at the option of the assessee, where the consideration
received by the assessee is from a non-resident, in the following manner:-
(a) the fair market value of
unquoted equity shares =(A–L)× [PV/PE], where,
A = book value of the assets
in the balance-sheet as reduced by any amount of tax paid as deduction or
collection at source or as advance tax payment as reduced by the amount of tax
claimed as refund under the Income-tax Act and any amount shown in the
balance-sheet as asset including the unamortised amount of deferred expenditure
which does not represent the value of any asset
L = book value of liabilities
shown in the balance-sheet, but not including the following amounts, namely:—
(i) the paid-up capital in
respect of equity shares;
(ii) the amount set apart for
payment of dividends on preference shares and equity shares where such
dividends have not been declared before the date of transfer at a general body
meeting of the company;
(iii) reserves and surplus, by
whatever name called, even if the resulting figure is negative, other than
those set apart towards depreciation;
(iv) any amount representing
provision for taxation, other than amount of tax paid as deduction or
collection at source or as advance tax payment as reduced by the amount of tax
claimed as refund under the Income-tax Act, to the extent of the excess over
the tax payable with reference to the book profits in accordance with the law applicable
thereto;
(v) any amount representing
provisions made for meeting liabilities, other than ascertained liabilities;
(vi) any amount representing
contingent liabilities other than arrears of dividends payable in respect of
cumulative preference shares;
PE = total amount of paid up
equity share capital as shown in the balance-sheet;
PV = the paid up value of such
equity shares; or
(b) the fair market value of
the unquoted equity shares determined by a merchant banker as per the
Discounted Free Cash Flow method;
(c) where any consideration is
received by a venture capital undertaking for issue of unquoted equity shares,
from a venture capital fund or a venture capital company or a specified fund,
the price of the equity shares corresponding to such consideration may, at the
option of such undertaking, be taken as the fair market value of the equity
shares to the extent the consideration from such fair market value does not
exceed the aggregate consideration that is received from a venture capital fund
or a venture capital company or a specified fund :
Provided that the
consideration has been received by the undertaking from a venture capital fund
or a venture capital company or a specified fund, within a period of ninety
days before or after the date of issue of shares which are the subject matter
of valuation.
Explanation.– For the purposes
of this clause,– (i) “specified fund” shall have the same meaning as assigned
to it in clause (aa) of Explanation to clause (viib) of sub-section (2) of
section 56;
(ii) “venture capital
company”, “venture capital fund” and “venture capital undertaking” shall have
the same meaning assigned to them in clause (b) of Explanation to clause (viib)
of sub-section (2) of section 56.
Illustration: If a venture
capital undertaking receives a consideration of fifty thousand rupees from a
venture capital company for issue of one hundred shares at the rate of five
hundred rupees per share, then such an undertaking can issue one hundred shares
at this rate to any other investor within a period of ninety days before or
after the receipt of consideration from venture capital company.
(d) the fair market value of
the unquoted equity shares determined by a merchant banker in accordance with
any of the following methods:
(i) Comparable Company
Multiple Method;
(ii) Probability Weighted
Expected Return Method;
(iii) Option Pricing Method;
(iv) Milestone Analysis
Method;
(v) Replacement Cost Methods;
(e) where any consideration is
received by a company for issue of unquoted equity shares, from any entity
notified under clause (ii) of the first proviso to clause (viib) of sub-section
(2) of section 56, the price of the equity shares corresponding to such
consideration may, at the option of such company, be taken as the fair market
value of the equity shares to the extent the consideration from such fair
market value does not exceed the aggregate consideration that is received from
the notified entity: Provided that the consideration has been received by the
company from the entity notified under clause (ii) of the first proviso to
clause (viib) of sub-section (2) of section 56, within a period of ninety days
before or after the date of issue of shares which are the subject matter of
valuation.
(B) the fair market value of
compulsorily convertible preference shares for the purposes of sub-clause (i)
of clause (a) of the Explanation to clause (viib) of sub-section (2) of section
56 shall be the value, on the valuation date, as determined–
(i) in accordance with the
provisions of sub-clause (b), sub-clause (c), or sub-clause (e) of clause (A),
at the option of the assessee, or based on the fair market value of unquoted
equity shares determined in accordance with sub-clause (a), sub-clause (b),
sub-clause (c), or sub-clause (e) of clause (A), at the option of the assessee,
where such consideration is received from a resident; and
(ii) in accordance with the
provisions of sub-clauses (b) to (e) of clause (A), at the option of the
assessee, or based on the fair market value of unquoted equity shares
determined in accordance with sub-clauses (a) to (e) of clause (A), at the
option of the assessee, where such consideration is received from a
non-resident.
(3) Where the date of
valuation report by the merchant banker for the purposes of sub-rule (2) is not
more than ninety days prior to the date of issue of shares which are the
subject matter of valuation, such date may, at the option of the assessee, be
deemed to be the valuation date: Provided that where such option is exercised
under this sub-rule, the provisions of clause (j) of rule 11U shall not apply.
(4) For the purposes of clause
(A) or clause (B) of sub-rule (2), where the issue price of the shares exceeds
the value of shares as determined in accordance with - (i) sub-clause (a) or
sub-clause (b) of clause (A), for consideration received from a resident, by an
amount not exceeding ten per cent. of the valuation price, the issue price
shall be deemed to be the fair market value of such shares; (ii) sub-clause (a)
or sub-clause (b) or sub-clause (d) of clause (A), for consideration received
from a non- resident, by an amount not exceeding ten per cent. of the valuation
price, the issue price shall be deemed to be the fair market value of such shares.
Explanation.– For the purposes
of this sub-rule, ‘issue price’ means the consideration received by the company
for one share.”
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