Recent changes in share valuation Regulations under IT Act
Income-tax is a tax on income (and nothing else). However, in a few instances capital transactions (like issuance of share, transfer of shares, etc.) can be deemed as notional income and subjected to tax. As such a levy is a deviation from the normal scheme of taxation, elaborate and clear Legislation is of essence.
Date & Time
06
Oct 2023 | 4:00 PM
Section 56(2)(viib) and Section 56(2)(x) of the Income Tax Act are a few instances where notional sums (arising on capital transactions) are deemed as income. These sections treat specified transactions entered into at a price in variance to the Fair Market Value (FMV) as being notional income of the parties entering into the transactions.
Determination of FMV for the purpose of these sections are governed by Rules framed by the subordinate authorities. While determination of FMV for assets, more particularly value of a business in today’s scenario, is clearly an art, the artificial Rules framed for valuation, till recently were more theoretical and in large deviation from practice.
The Central Board of Direct Taxes has, vide Notification No. 81/2023, dated 25 September 2023, substantially modified the valuation rules. The amended rules, to a large extent tend to give extra elbow room to taxpayers and provide a safe harbour to a few classes of transactions. They also expand the ambit of valuation to expressly include Compulsorily Convertible Preference Shares (CCPS) as well.
The webinar would cover:
- Basic principles and legislative history for taxation of notional sums arising from capital transaction (particularly in relation to issuance of shares and transfer of shares).
- Possibility of double taxation, and legality thereof.
- The scheme of valuation of shares, and the changes proposed by the CBDT.
- The effect of the changes on past and future transactions.
- Precautions to be taken to avail the benefits extended by the amendment.
- Unresolved issues.
Speakers:
- S Sriram – Partner, LKS
- Dinesh Kukreja – Principal Associate, LKS
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