Indian Angel Tax under Sec. 56(2)(viib) - Intricacies and Controversies (open access video)

February 20 2023

The Indian Finance Bill, 2023 includes a proposed amendment to Sec. 56(2)(viib) of the Income Tax Act, 1961 ("the Act"). As per that provision (subject to certain exceptions) if an Indian company issues shares for consideration that exceeds the face value, then the aggregate consideration in excess of the fair market value of the shares is treated as taxable income from other sources. Until now, that provision does not apply in respect of issue of shares to non-residents. The proposed amendment aims to do away with that exception.

The proposed amendment, assuming it would be implemented, could have far reaching implications – not just for the future funding transactions but even for many transactions that are already completed (those involving convertible securities). The related issues are many, and far more intricate than what might appear from a quick glance.

The 9-part video series on Sec. 56(2)(viib) of the Act focusses on various intricacies and controversies.

This video (episode 1) highlights several issues Sec. 56(2)(viib) of the Act.

Further video discussion on issues under Sec. 56(2)(viib) of the Act (E.1 and E.5 are open access. Remaining episodes are for patrons):

2. How should Sec. 56(2)(viib) be interpreted?

3. Could Sec. 56(2)(viib) apply in respect of shares issued as consideration for purchase of assets?

4. Can the tax authorities reject valuation report?

5. When does Sec. 56(2)(viib) apply? (In the year when the share application money is received, or when the shares are allotted?) Who has the burden of proof? (Open Access)

6. Can Sec. 56(2)(viib) apply in case of amalgamation of companies?

7. Sec. 56(2)(viib) and the discounted cashflow (DCF) method.

8. Can Sec. 56(2)(viib) apply with respect to convertible debentures?

9. Can Sec. 56(2)(viib) apply with respect to shares issued as result of family arrangement? 

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