New valuation norms to tax foreign funds in unlisted cos likely

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 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 I-T Act, thereby bringing overseas investment in unlisted closely held companies, excepting DPIIT-recognized startups, under the tax net.

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

“Rule HUA of I-T rules will be re-prescribed taking into account the concerns expressed by stakeholders to harmonise it with the FEMA regulations,” the official said.