The Income Tax Department after giving in a due notice of the Angel tax has turned on to target taxation on foreign direct investment (FDI) received by big fatty Indian companies and multinationals who was paid an investment value of over and above the fair market value of shares.
Earlier, the IT department issued the Angel tax notice to unlisted startups who raised capital by issuing shares above the fair market value on the fact that the excess amount raised was subjected to tax and to be charged under the head ’ Income from other sources ‘.
Now companies which have received FDI, are being supplied a notice by the IT department on the ground that these companies have received premiums and such transactions are either left unexplained or misreported to be stated as income. The Industry sources affirmed that the IT department is putting up in scrutiny all the major FDI deals and could penalize the defaultees by 30% tax on the premiums paid by the investors.
Experts View Points
Industry experts also reported about investments made by foreign investors and multinationals in subsidiaries and Indian companies to be captured in the scrutiny process. A case in point came to notice when an American multinational made investment about Rs 1000 crore in an Indian Subsidiary, the IT department issued a notice to the company questioning about the valuation. The department was on the belief that transactions might have been valued at half price and they want to levy a tax on the difference in premiums.
Also, in various cases investments made by investors located outside India and private equity funds were also questioned, several tax experts reported.
In some cases, investments by private equity funds or other investors located outside India have also been questioned and the notices were issued under Section 68 of the IT act, tax experts said.
Section 68
As per Section 68, an IT officer can ask for details when he suspects some sort of round tripping or involvement of black money in a financial deal.
The FEMA (Foreign Exchange Management Act ) compliances state norms for Indian companies according to RBI, that these companies have to get a valuation of their structure from an Independent chartered accountant (CA) in case of unlisted companies before any deal. No company can sell its shares at a value lower than valuation or fair market value.
People inclined to such activities, already suspected that the tax department has started working on scrutinies of such deals and issuing notices. They also suspected the tax department for doubting the companies for some wrongdoing and putting disguising fees in front to save tax, as some tax experts say.
According to industry experts, the tax department suspected major multinationals for providing some goods or services to the foreign investors instead of any reported payment, the money was waved as capital investment to save tax. The department doubted of the sources of the movements of these investments.
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