Section 50CA - Special provision for full value of consideration for transfer of share other than quoted share - Income Tax - Ready Reckoner - Income Tax

Section 50CA - Special provision for full value of consideration for transfer of share other than quoted share Where the consideration received or accruing as a result of the transfer by an assessee of a capital asset, being share of a company other than a quoted share, is less than the fair market value of such share determined in such manner as may be prescribed, the value so determined shall, for the purposes of section 48 , be deemed to be the full value of consideration received or accruing as a result of such transfer. Explanation .-For the purposes of this section, quoted share means the share quoted on any recognised stock exchange with regularity from time to time, where the quotation of such share is based on current transaction made in the ordinary course of business. Exception - The provisions of this section shall not apply to any consideration received or accruing as a result of transfer by such class of persons and subject to such conditions as may be prescribed. Impact of Section 50CA on Seller While computing the Capital Gain on transfer of shares, FMV of share will replace the actual sale consideration on transfer of such shares. The seller, in such case, will have to pay Capital Gain tax on difference between FMV of the shares and cost price (or the inflation indexed cost price, as the case may be) of such shares. Method of determining the FMV of unquoted equity share [ Rule 11UAA ] For the purpose of section 50CA , the FMV of the share of a company other than quoted share shall be determined in the manner provided in sub-clause (b),(c) of rule 11UA(1)(c) and for this purpose the reference to valuation date in the rule 11U and rule 11UA shall mean the date on which the capital asset, being share of a company other than a quoted share, referred to in section 50CA , is transferred. The fair market value of unquoted equity shares shall be the value, on the valuation date, of such unquoted equity shares as determined in the following manner, namely:- the fair market value of unquoted equity shares =(A+B+C+D - L) (PV)/(PE), where, A = book value of all the assets (other than jewellery, artistic work, shares, securities and immovable property) in the balance-sheet as reduced by ,- (i) any amount of income-tax paid, if any, less the amount of income-tax refund claimed, if any; and (ii) any amount shown as asset including the unamortised amount of deferred expenditure which does not represent the value of any asset; B = the price which the jewellery and artistic work would fetch if sold in the open market on the basis of the valuation report obtained from a registered valuer; C = fair market value of shares and securities as determined in the manner provided in this rule; D = the value adopted or assessed or assessable by any authority of the Government for the purpose of payment of stamp duty in respect of the immovable property; L = book value of liabilities shown in the balance sheet, but not including the following amounts, namely:- (i) the paid-up capital in respect of equity shares; (ii) the amount set apart for payment of dividends on preference shares and equity shares where such dividends have not been declared before the date of transfer at a general body meeting of the company; (iii) reserves and surplus, by whatever name called, even if the resulting figure is negative, other than those set apart towards depreciation; (iv) any amount representing provision for taxation, other than amount of income-tax paid, if any, less the amount of income-tax claimed as refund, if any, to the extent of the excess over the tax payable with reference to the book profits in accordance with the law applicable thereto; (v) any amount representing provisions made for meeting liabilities, other than ascertained liabilities; (vi) any amount representing contingent liabilities other than arrears of dividends payable in respect of cumulative preference shares; PV = the paid up value of such equity shares; PE = total amount of paid up equity share capital as shown in the balance-sheet.