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Investment by Residents in Unquoted Equity Shares [Rule 11UA(2)(A)(a), (b), (c), or (e)]
Category: Notification, Posted on: 28/09/2023
, Posted By:
CA. (Dr) VINAY MITTAL
Visitor Count:484
Investment by Residents in Unquoted Equity Shares [Rule 11UA(2)(A)(a), (b), (c), or (e)]
1. In addition to the already existing valuation methods (NAV & DCF) applicable to investment received from a resident, the amended Rules provides 2 more valuation options to the Assessees. [Clause (a)/(b)]
2. The two additional valuation options are with respect to investment in VC undertaking and investment from entities notified under clause (ii) of first proviso to Section 56(2)(viib), (vide Notification No.29/2023 dated 24.05.2023)
3. The valuation of investment received by a VC undertaking for issue of unquoted equity shares, from a VC fund or a VC company or a specified fund, the price of the equity shares at the option of VC undertaking, be taken as the fair market value of the equity shares to the extent it does not exceed the aggregate investment so received. This would be acceptable if the investment is received by the VC undertaking within a period of 90 days of the date of issue of shares which are under valuation dispute. [Clause (c)]
4. The valuation of investment received by a company from entities notified under clause (ii) of first proviso to Section 56(2)(viib) also works in the same manner as that of investment in VC undertaking by a VC fund/ company or a specified fund. [Clause (e)]
Investment by Non-residents in Unquoted Equity Shares [Rule 11UA(2)(A)(a), (b), (c), (d) or (e)]
5. For investment by non-residents, the aforementioned four valuation clauses also apply.
6. The fifth one that applies only on investment made by non-residents is the valuation determined by a merchant banker in accordance with any of the 5 following methods: (i) Comparable Company Multiple Method, (ii) Probability Weighted Expected Return Method, (iii) Option Pricing Method, (iv) Milestone Analysis Method, and (v) Replacement Cost Method. [Clause (d)]
Investment in Compulsorily Convertible Preference Shares [Rule 11UA(2)(B)]
7. The fair market value of compulsorily convertible preference shares, where investor is a resident, shall be the value on the valuation date in accordance with sub-clause (b), (c), or (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), (b), (c), or (e) of clause (A), at the option of the assessee.
8. The fair market value of compulsorily convertible preference shares, where investor is a non-resident, shall be the value on the valuation date 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.
Deemed Valuation Date [Rule 11UA(3)]
9. Where the date of merchant banker’s valuation report (required for DCF and 5 new methods) is not more than 90 days prior to the date of issue of shares under valuation dispute, then such date at the option of the assessee shall be deemed to be the valuation date. Provided that where such option is exercised under this sub-rule, the provisions of Rule 11U(j) shall not apply. (Rule 11U(j) defines 'valuation date' means the date on which the property or consideration, as the case may be, is received by the assessee.)
Safe Harbours [Rule 11UA(4)] - Applicable to Unquoted Equity Shares and Compulsorily Convertible Preference Shares
10. For investment by residents, 10% safe harbour is applicable on valuation arrived at by NAV or DCF methods where the issue price of the shares exceeds the value of shares.
11. For investment by non-residents, 10% safe harbour is applicable on valuation arrived at by NAV or DCF or five new valuation methods (point 6 above) where the issue price of the shares exceeds the value of shares.
12. Issue price means the consideration received by the company for one share.
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