Foreign parent share issuances require FEMA valuation despite angel tax abolition

The formal abolition of angel tax has removed certain domestic tax hurdles for companies raising capital, but significant regulatory requirements continue to govern shares issued to foreign parent entities. Issuing firms must strictly adhere to Foreign Exchange Management Act (FEMA) pricing guidelines, Companies Act valuation standards, and complete mandatory filings including Form PAS-3 and Reserve Bank of India (RBI) FC-GPR submissions. While the elimination of angel tax removes concerns over income tax additions on share premiums received from resident and non-resident investors under old provisions, capital flows involving foreign parent entities remain subject to strict foreign exchange controls.

The FEMA framework requires that shares issued to non-residents comply with prescribed pricing thresholds based on internationally accepted valuation methodologies. At the same time, corporate law mandates proper independent valuations and timely allotment filings to maintain legal validity. CAs and corporate finance advisors must guide clients to look beyond direct tax exemptions and maintain rigorous compliance with exchange control regulations. Companies must ensure that valuation certificates comply with RBI norms before filing Form PAS-3 and submitting the FC-GPR return through the designated reporting portals.

Bottom line: neglecting FEMA and Companies Act formalities during cross-border share issuances can trigger severe regulatory penalties even after direct tax liabilities are removed.