CAs excluded from fair valuation of closely held companies

The change brings provision on par with Rule 3 of the I-T Act, which says only a merchant banker may calculate the value of unlisted shares issued under Employee Stock Ownership schemes.

The income tax (I-T) department has removed chartered accountants (CAs) from the list of authorised professionals to value shares of closely-held companies, says a Business Standard report. 
 
With this, CAs have been barred from valuing shares of closely held companies.
 
Earlier, the fair market value of unlisted equity shares was calculated by a merchant banker or a CA.
 
As per the orders of Central Board of Direct Taxes, only a merchant banker may do this. 
 
Thus, while unlisted shares or unlisted companies may be sold or valued by a CA but it will require a merchant banker’s valuation report for I-T purpose.
 
The change brings provision on par with Rule 3 of the I-T Act, which says only a merchant banker may calculate the value of unlisted shares issued under Employee Stock Ownership schemes.
 
Small start-ups have been exempted from investments that they receive from angel investors above their fair valuation. 
 
The step has come as a relief as a few of them had received notices from the I-T department.
 
The exemption is provided to start-ups whose paid-up capital and share premium do not exceed ₹10 crore after the share sale.
 
According to DIPP, a firm shall cease to be a start-up after seven years from the date of its incorporation/registration f its turnover for any previous year exceeds ₹25 crore. 
 
However, the start-ups related to the biotechnology sector shall cease to be a start-up on completion of ten years from the date of its incorporation/registration or if its turnover for any previous year exceeds ₹25 crore.
 
Source: BS, The Hindu

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