CAs excluded from fair valuation of start-up

CAs excluded from fair valuation of start-up

News:

1. The Department of Income Tax has given the task of fair valuation of start ups exclusively to Merchant banks.

Important Facts:

2. The Income Tax Department has excluded chartered accountants (CAs) from assessing the fair valuation of start-ups.
3. The decision to exclude CAs from assessing the fair valuation brings it in line with another rule that allows only merchant bankers to calculate the value of unlisted shares issued to employees under the ESOP schemes.
4. In the notification, the department provided tax exemption for investments that small start-ups receive from angel investors above their fair valuation.
5. The step comes as a relief to start-ups that have been complaining about tax on investments raised from angel investors.
6. Start-ups approved by an inter-ministerial panel are exempted from tax levied on firms issuing shares to investors above their fair value, treating it as income from other sources. This exemption was earlier available to investments from registered venture capital funds and foreign investors.
7. Features:

•  the exemption is meant for small start-ups whose paid-up capital and share premium do not exceed Rs 10 crore after the share sale.
• The angel investor should have had Rs25 lakh average income in the preceding three years or Rs2 crore net worth at the end of the previous fiscal.

8. Criticism

• The decision to exclude chartered accountants from assessing the fair valuation was seen as arbitrary and unfair.
• The decision will impact both the chartered accountants and companies.