Amendment of Rule 11UAC of Income tax Rules, 1962

## Report on Income-tax (28th Amendment) Rules, 2021 **1. Executive Summary:** This report analyzes the Income-tax (28th Amendment) Rules, 2021, as notified by the Central Board of Direct Taxes (CBDT) on September 10, 2021, via Notification G.S.R. 623(E). This amendment modifies the Income-tax Rules, 1962, by inserting a new clause in rule 11UAC, concerning the valuation of movable property. The core purpose of this amendment is to address the valuation of equity shares of public sector companies received by a person from the Central Government or any State Government under strategic disinvestment. The key finding is that this amendment aims to provide clarity and potentially favorable valuation rules for assets acquired through strategic disinvestment, which could incentivize participation in such programs. **2. Introduction:** This report aims to provide a comprehensive overview of the Income-tax (28th Amendment) Rules, 2021, based solely on the provided official notification text. The report outlines the changes introduced to the Income-tax Rules, 1962, their potential impact, and relevant stakeholders. **3. Policy Overview:** * **Amendment:** This is an amendment to the Income-tax Rules, 1962. * **Core Objective(s):** As inferred from the provided text, the core objective of this amendment is to provide a specific valuation rule under the Income-tax Act, 1961, for movable property, specifically equity shares of public sector companies, received from the Central or State Government under strategic disinvestment. This is to clarify how such assets will be valued for income tax purposes. **4. Background and Rationale:** * **Amendment Rationale:** The likely reason for this amendment is to address a potential gap or ambiguity in the existing Income-tax Rules, 1962, regarding the valuation of equity shares acquired through strategic disinvestment. Without a specific rule, the valuation of these assets might be subject to dispute or uncertainty. This amendment aims to provide a clear and defined methodology for determining the value of such shares, which may align with the government's objective to promote strategic disinvestment. **5. Key Provisions / Changes:** This amendment specifically inserts the following clause into Rule 11UAC of the Income-tax Rules, 1962: * "4 any movable property, being equity shares, of the public sector company, received by a person from the Central Government or any State Government under strategic disinvestment." * **Specific Part Changed:** Rule 11UAC of the Income-tax Rules, 1962 * **New Rule/Provision:** The new provision addresses the valuation of "any movable property, being equity shares, of the public sector company, received by a person from the Central Government or any State Government under strategic disinvestment." This indicates that the valuation of such shares is now explicitly covered under Rule 11UAC. * **Difference/Effect:** The amendment introduces a specific valuation rule for equity shares acquired through strategic disinvestment. The specific valuation methodology is not detailed in the provided text. However, the addition of this clause means that existing general valuation rules may not be applicable, or will be superseded by this specific clause. This provision will be effective from April 1, 2022, and applicable for the assessment year 2022-23 and subsequent years. * **Definition of Strategic Disinvestment:** The amendment also states that "strategic disinvestment shall have the same meaning as assigned to it in clause iii of Explanation to clause (d) of sub-section (1) of section 72A." **6. Target Audience and Stakeholders:** Based on the provided text, the primary target audience and stakeholders are: * Individuals or entities receiving equity shares of public sector companies from the Central Government or any State Government under strategic disinvestment. * Public sector companies undergoing strategic disinvestment. * Tax advisors and professionals who advise on income tax matters related to strategic disinvestment. **7. Implementation Aspects (Inferred):** * **Responsible agency/bodies:** The Central Board of Direct Taxes (CBDT) is the responsible body for implementing and administering these rules. * **Timelines:** The amendment comes into force on April 1, 2022, and is applicable for the assessment year 2022-23 and subsequent assessment years. * **Amendment specific Implementation:** This amendment would necessitate updating valuation methodologies to incorporate the clause. Stakeholders should familiarize themselves with the definition of "strategic disinvestment" as it is defined in clause iii of Explanation to clause (d) of sub-section (1) of section 72A, as this definition is crucial for proper application. **8. Expected Outcomes / Impact of Changes:** * **Likely Intended Outcome:** The likely intended outcome of this amendment is to: * Provide clarity and certainty regarding the valuation of equity shares acquired through strategic disinvestment. * Facilitate and encourage participation in strategic disinvestment programs by addressing potential tax-related uncertainties. * Ensure consistent and standardized tax treatment for assets acquired through strategic disinvestment. **9. Conclusion:** The Income-tax (28th Amendment) Rules, 2021, represents a targeted change to the Income-tax Rules, 1962, addressing the specific issue of valuation for equity shares of public sector companies received under strategic disinvestment. By providing a specific valuation rule, the amendment is likely intended to promote participation in strategic disinvestment initiatives and ensure consistent tax treatment of such transactions. The amendment's impact will be felt by individuals and entities involved in strategic disinvestment programs, as well as tax professionals advising on these matters.

Key Entities Referenced