Highlights of amended Rule 11 UA notified on 25 Sept.2023
The CBDT has just notified some major amendments to Rule 11UA, bringing significant changes to the valuation of investments in unquoted equity shares and compulsorily convertible preference shares (CCPS). Let’s dive into the key highlights:
1. Expanded Valuation Options for Residents
In addition to existing NAV & DCF methods, the amended rules introduce two new valuation options for investments from residents. These new options apply to investments in VC undertakings and entities under Section 56(2)(viib).
2. VC Undertaking Valuation
For VC undertakings receiving investments for unquoted equity shares, the fair market value can be determined by the price of equity shares at the VC undertaking’s discretion, as long as it doesn’t exceed the received investment, within 90 days of share issuance.
3. Entities Under Section 56(2)(viib)
Similar rules apply to investments from entities specified under Section 56(2)(viib), following the same valuation method as VC undertakings.
4. Non-Residents Get Five Valuation Methods
Non-residents can choose from four valuation clauses mentioned earlier, plus an additional option: valuation determined by a merchant banker using five methods – Comparable Company Multiple, Probability Weighted Expected Return, Option Pricing, Milestone Analysis, and Replacement Cost.
5. CCPS Valuation for Residents and Non-Residents
For CCPS investments, both residents and non-residents have options: they can base the valuation on sub-clause (a), (b), (c), or (e) of clause (A), or alternatively, use the fair market value of unquoted equity shares as a basis for valuation.
6. Deemed Valuation Date
In case the merchant banker’s valuation report is not older than 90 days before the issue of shares under dispute, the assessee can opt for the valuation date as the date of the report. This option nullifies Rule 11U(j)’s definition of the valuation date.
7. Safe Harbours for Both Residents and Non-Residents
A 10% safe harbor is in place for residents and non-residents when the issue price of shares exceeds their value. This applies to both unquoted equity shares and CCPS.
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The copy of the order is as under: