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Promoters and investors in unicorns or new-age start-ups can no longer expect to make a tidy pile from any exits without forking out due sums to the taxman.
To ensure that promoters and investors accurately report the capital gains from the sale of unlisted shares, the Income-Tax Department has introduced new disclosure norms in the latest edition of I-T return forms.
The new forms — applicable for FY18 — require taxpayers (individuals) to provide the fair market value, or FMV (in the prescribed manner), of unlisted shares and also disclose the full value of consideration received/receivable in respect of unquoted shares sold by them during the year.
The start-up valuation world is often seen as a blackbox by the taxman, given its highly subjective nature and the closed nature of the deals.
The I-T department, therefore, wants investors to commit themselves upfront on the manner in which the fair market value has been determined and support it with valuation reports, say tax experts.
Higher compliance cost
Naveen Wadhwa, DGM, Taxmann.com, said the I-T department is now shifting the onus on the investors to substantiate the correctness of capital gains calculations.
“This requirement will increase the compliance cost for investors since the valuation may have to be done through a merchant banker or a CA,” he told BusinessLine.
After the introduction of the new Section 50CA in the Finance Act, 2017, it has become compulsory for every seller to obtain the FMV of every unlisted share being transferred, he added.
Aseem Chawla, Partner at law firm Phoenix Legal, said the new ITR-2 form mandates disclosure of the basis of determination of fair market value of unquoted shares.
An investor would need to provide the details justifying the manner of computation of capital gains tax on the sale of such shares, he added.
“This move requires taxpayers to procure valuation certificates even at the time of filing I-T returns,” Chawla said.
As the taxpayer has to reason out the basis of determination of FMV, s/he needs to have documentation even at the time of filing the tax return and not wait till the assessment is proceeded with, he added.
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