The Central Government today notified the final rules for valuation of unquoted equity shares for the purpose of section 50CA of the Income Tax Act, 1961.
The Finance Act, 2017 has inserted two new sections, i.e s. 56(2)(x) and section 50CA to the Income Tax Act. The first provision mandates determination of fair market value (FMV) for computation of taxable income when a person receives jewellery or artistic work or shares and securities for no / inadequate consideration.
Similarly, for immovable property, the stamp duty value is taken into consideration for determining taxability under the same section. However when these assets are received as underlying assets of unquoted equity shares of company, the book value (and not the FMV / stamp duty value) is taken into consideration for determining the value of such shares.
Section 50CA says that where consideration for transfer of unquoted equity share of a company is less than the FMV of such share determined in accordance with the prescribed manner, the FMV shall be deemed to be the full value of consideration for the purposes of computing income under the head “Capital gains”.
The present notification stipulates the rules for determining the fair market value of unquoted equity shares in terms with the above provisions.
Read the full text of the Notification below.