The Central Board of Direct Taxes (CBDT) on Thursday, May 25, exempted certain categories of investors from the provisions of Section 56(2)(VIIB) of the Income Tax Act. This deals with angel tax, which is the tax payable by privately-held companies on the issue of shares at a rate higher than the fair market value.
The angel tax provisions will not apply to the following non-resident investors :
Government and government-related investors such as central banks, sovereign wealth funds, international or multilateral organisations or agencies, including entities controlled by the government or where direct or indirect ownership of the government is 75 percent or more.
Banks or entities involved in the insurance business where such an entity is subject to applicable regulations in the country where it is established or incorporated or is a resident.
Any of the following entities, which is a resident of any country or specified territory listed in the annexure, and such entity is subject to applicable regulations in the country where it is established or incorporated or is a resident:(a) Entities registered with Securities and Exchange Board of India (SEBI) as category I foreign portfolio investors.
(b) Endowment funds associated with a university, hospitals or charities.
(c) Pension funds created or established under the law of the foreign country or specified territory.
(d) Broad-based pooled investment vehicles or funds where the number of investors in such a vehicle or fund is more than 50 and the fund is not a hedge fund or one that employs diverse or complex trading strategies.
The exempt country list includes Australia, Austria, Belgium, Canada, the Czech Republic, Denmark, Finland, France, Germany, Iceland, Israel, Italy, Japan, Korea, New Zealand, Norway, Russia, Spain, Sweden, United Kingdom and the United States.
Additionally, consideration received by DPIIT registered startups will not attract angel tax levy.
Welcoming the step, Punit Shah, Partner at Dhruva Advisors, said these benefits may not be available to several large private equity funds who invest in India through jurisdictions such as Mauritius and Singapore.
"Also, the broad-based funds are defined as having more than 50 investors. Hence, it would be interesting to see whether this benefit is extended to such pooling vehicles making investments in India through specific SPVs located in non-specified jurisdictions," Shah said.
(Edited by : Shoma Bhattacharjee)
First Published: May 25, 2023 6:11 PM IST
