Share premium received by closely held company - Section 56(2)(viib) - Income Tax - Ready Reckoner - Income Tax

Section 56(2)(viib) SHARE PREMIUM RECEIVED BY CLOSELY HELD COMPANY The provisions of section 56(2)(viib) shall not apply on or after the 1st day of April, 2025 [ Inserted vide Finance (No. 2) Act, 2024 w.e.f. 01.04.2025 ] Where a company not being a public company, receives in any previous year from any person, being a RESIDENT [Shall be omitted w.e.f. 01-04-2024, Amendment by FA, 2023 ] any consideration for issue of shares that exceeds the face value of such shares then- Aggregate consideration received for such shares Fair market value of the shares Fair market value of the share shall be the higher of the value - ( i ) as may be determined in accordance with such method as may be prescribed in the rule 11U and rule 11UA ; or ( ii ) as may be substantiated by the company to the satisfaction of the Assessing Officer, based on the value, on the date of issue of shares, of its assets, including intangible assets being goodwill, know-how, patents, copyrights, trademarks, licences, franchises or any other business or commercial rights of similar nature, shall be taxable in the head of income from other sources in the hands of the company. NON APPLICABILITY OF SECTION 56(2)(viib) This shall not apply where consideration for issue of shares is received: By venture capital undertaking from a Venture Capital company/ Fund or a specified fund , because these are governed by rules of SEBI . By a company from a class or classes of persons as may be notified by the central government in this behalf. Where the provisions of this clause have not been applied to a company on account of fulfilment of conditions specified in the notification issued under clause (ii) of the first proviso and such company fails to comply with any of those conditions, then, any consideration received for issue of share that exceeds the face value of such share shall be deemed to be the income of that company chargeable to income-tax for the previous year in which such failure has taken place. This section does not apply where a closely held company issues shares to a Non-Resident at a premium in excess of FMV, because the money received from non-resident is regulated by FEMA. This section does not apply if a widely held company issues shares at a premium, because SEBI approves the price at which shares are issued by a widely held company. NOTE:- Inserted vide FINANCE (NO. 2) ACT, 2019 w.e.f. 01-04-2020 Specified fund means a fund established or incorporated in India in the form of a trust or a company or a limited liability partnership or a body corporate which has been granted a certificate of registration as a category I or a Category II Alternative Investment Fund and is regulated under the Securities and Exchange Board of India (Alternative Investment Fund) Regulations, 2012 made under the Securities and Exchange Board of India Act, 1992 or regulated under the International Financial Services Centre Authority (Fund Management) Regulations, 2022 made under the International Financial Services Centres Authority Act, 2019 [Amended by FA, 2023 ] trust means a trust established under the Indian Trusts Act, 1882 or under any other law for the time being in force