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There is news in the market that following a Government clarification, companies that are subject to a 30% tax bill over valuation premiums will get some respite after all.
Market insiders report officials have been directed to refrain from scrutinising these transactions, with further information of some relief to be extended to startups on the angel tax front as well.
Many companies had received tax demands despite having paid the premiums over the ‘fair market value’ for new equity and preference shares. A Government notice on December 31, 2018, stated that fresh issuance of shares at a premium, in most of the cases, would be left outside the boundaries of taxation.
Many startups will also stand to benefit with the angel tax issue even though the clarification does not explicitly mention tax premiums involving startups.
This news by the government is expected to have a positive effect on matters where the taxman challenged valuations for fresh issuance of shares. , and the revenue department will have to retreat the tax demands.
The revenue department had earlier issued notices raising the tax demands which could run into hundreds of crores where the premiums had been paid. Companies were dealt a blow of 30% tax on the differential on top of the fair market value inferred by the tax department.
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