‘Draft rules to resolve angel tax issues possible in 7-10 days’

Startups, which are already grappling with funding crunch amid rising global interest rates, fear that changes in angel tax provisions will drive away foreign investment.

“We have held extensive consultations with all the associations and we have submitted their suggestions to the Finance Ministry. [Proposed solution] This will be in the form of a draft consultation and it will address the issue of difference in terms of valuation techniques used under the Income Tax Act and the FEMA Act,” said a government official.

“Dualism” [between the two] Most likely it will end. The draft rules will be one in weeks or ten days.”

The startup ecosystem, which largely depends on foreign capital and typically issues shares at a premium to fair market value (FMV) on the promise of future growth, was particularly concerned that in section 56.2.vii b The new amendment can be applied to foreigners. Investment.

Mint had earlier reported that the government is considering exempting foreign funds from angel tax compliance, and rules on angel tax are expected to be released this month, outlining exemptions for select foreign entities that are are investors.

According to EY, foreign PE/VC funds announced investments of $77 billion in 2021, which will come down slightly to around $54 billion in 2022.

The first set of foreign funds to be exempted include sovereign wealth funds such as Abu Dhabi Investment Authority, GIC and Qatar Investment Authority. This is due to concerns that the potential impact of the Section 56.2 Vii B tax could negatively impact foreign investment, which could reduce government infrastructure investment.

The government had earlier argued that angel tax, or Section 56(2) VII B, targets ‘hawala’ transactions rather than startups and that doing away with ‘preferential treatment’ for foreign investors would level the playing field as Indian residents are already subject to it. Tax.