India Introduces Final Angel Tax Rules for Overseas Investments in Startups ( September 27, 2023 )

India has finalized its rules for taxing overseas investments in startups in the country—commonly called the ‘angel tax’ provision. We discuss the valuation process for startup investors under the amended Rule 11UA.

Following public consultations, the Central Board of Direct of Taxes (CBDT) has officially announced the final valuation rules (revised Rule 11UA) for overseas investments in startups in india. These amendments are in response to the Finance Act, 2023’s inclusion of non-resident investments in Section 56(2) (vii) (b) of the Income-tax Act 1961, commonly known as the ‘angel tax’ provision.

The changes are aimed at addressing concerns about valuation disputes and ensuring clarity in the taxation of investments, both from residents and non-residents. The rules, effective from September 25, offer investors the flexibility of picking any of the newly introduced five valuation methods in addition to discounted cash flow and net asset value methods for determining angel tax incidence under Section 56(2) (vii) (b) of India’s Income-tax Act 1961.