Issue of Equity Shares at a Premium … Merchant Banker vs CA

Possible risk, ~ income tax on the Share Premium — from   shareholders

With an objective to deter generation and use of unaccounted money through subscription of shares of a closely held company at a value which is higher than the Fair Market Value (FMV) of shares of such company, the Finance Act 2012 introduced a new section 56(2)(viib).

Till Year 2023: As per the existing provisions, if a company, in which the public are not substantially interested, receives from any resident person, any consideration for issue of shares exceeding the face value of such shares, the aggregate consideration that exceeds the FMV of the shares, shall be chargeable to tax as ‘Income from other sources’ in the hands of the closely-held company.

Fair market value of the unquoted equity shares is determined in accordance with the method prescribed under Rule 11UA of the Income Tax Rules 1962 (‘Rules’) – either through the book value method or the discounted cash flow (‘DCF’) method, at the option of the company.

and after 2023..

now this is for all… both Resident investor and Non Resident investor

riskCompany safety ?
As of now, there is a possibility, that the valuation report is from a CA, who is not a Merchant Banker
as per law, for NAV method a CA is allowed
but for DCF method, only a Merchant Banker is allowed,
so, we must arrange a Certificate from a Merchant Banker also
Contact your friendly Merchant Banker

How to Avoid this Possible risk,  ?

Answer. = Follow the Law

First, Take advice of a Competent and updated Team

Second, get NAV based certificate from your Friendly Chartered Accountant, he will refer to your last Signed , Audited, Adopted Balance Sheet


Thirdly, for DCF method, ask your CA sir to connect to a Friendly Merchant Banker. They will guide you the best.

yes, things are very clear, and there is no confusion.

WordPress Image Lightbox