No Angel Tax for investors from 21 countries

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Investors from as many as 21 countries across the globe would not be required to pay angel tax, which is payable by privately-held companies while issuing shares at a rate exceeding the fair market value, Central Board of Direct Taxes notified on May 25.

Among the countries that are on the exemption list are the US, the UK, Russia, Spain, Sweden, Norway, Australia, Austria, Belgium, Canada, Japan, France, Germany, Italy, Japan, Israel, South Korea.

However, entities based in Mauritius, Singapore and Luxembourgh that have been major investors in India down the years have been let out of the exemption ambit. Mauritius and Singapore account for 26% and 23% of the cumulative FDI into India this is century, or from April 2000.

Analysts were quick to point out that the incentive will leave out a major pool that has regularly reposed their trust on India.

This tax finds mention in section 56(2)(VIIB) of the Income Tax Act. This section deals with angel tax, which is the tax payable by privately-held companies while issuing shares at a rate exceeding the fair market value.

However, some categories of investors such as government-related entities such as central banks, sovereign wealth funds, banks or entities involved in the insurance business, those registered with Sebi as category 1 FPIs, endowments funds, broad-based funds with more than 50 investors won’t be eligible for this exemption.

The exemption will be available for foreign investments that have been registered with DPIIT (Department of Promotion of Industry and Internal Trade. The Economic Times reported that no changes have been made to the eligibility conditions to register with DPIIT.

The ET also mentioned that the government amended Angen Tax provision in section (56)(viib) of the Income Tax Act and brought foreign investments under its ambit. Earlier, the provision applied only to investments by Indian residents and funds which were not registered as Alternative investment funds.