Computation of Fair Market Value [FMV] of Unquoted Equity Shares as per Income-tax (20th Amendment), Rules, 2017 notified vide Notification No. 61/2017, dated 12.07.2017. Sale is applicable With Effec From 01.04.2018 and shall apply to assessment year 2018-19 & subsequent years.

(A+B+C+D – L) × (PV)/ (PE)

 Where,

 ABook Value of all the assets other than jewellery, artistic work, shares, securities & immovable property) as per Balance sheet & as reduced by-

1. Any amount of Income-Tax paid, if any, less the amount of income-tax refund claimed, if any; &

2. Any amount shown as asset including the unamortized 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;

CFair Market Value [FMV] of shares & securities as determined in the manner provided in Rule 11UAA* of the Income – Tax Rules, 1962 as amended by the Income-tax (20th Amendment), Rules, 2017;

DThe value adopted or assessed or asses sable 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:—

1. The paid-up capital in respect of equity shares;

2. The amount set apart for payment of dividends on preference shares & equity shares where such dividends have not been declared before the date of transfer at a general body meeting of the company;

3. Reserves & Surplus, even if the resulting figure is negative, other than those set apart towards depreciation;

4. 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;

5. Any amount representing provisions made for meeting liabilities, other than ascertained liabilities;

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6. 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.

* Rule 11UAA – In Brief  

The FMV 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-L) × (PV) ÷ (PE) 

Where,  

A Book Value of all the assets other than jewellery, artistic work, shares, securities & immovable property) as per Balance sheet & as reduced by-

1. Any amount of Income-Tax paid, if any, less the amount of income-tax refund claimed, if any; &

2. Any amount shown as asset including the unamortized amount of deferred expenditure which does not represent the value of any asset;

L – Book value of liabilities shown in the balance sheet, but not including the following amounts, namely:— 

1. The paid-up capital in respect of equity shares;

2. The amount set apart for payment of dividends on preference shares & equity shares where such dividends have not been declared before the date of transfer at a general body meeting of the company;

3. Reserves & Surplus, even if the resulting figure is negative, other than those set apart towards depreciation;

4. 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;

5. Any amount representing provisions made for meeting liabilities, other than ascertained liabilities;

6. Any amount representing contingent liabilities other than arrears of dividends payable in respect of cumulative preference shares;

Or 

The FMV of unquoted shares and securities other than equity shares in a company which are not listed in any recognized stock exchange shall be estimated to be price it would fetch if sold in the open market on the valuation date and the assessee may obtain a report from a merchant banker or an accountant in respect of such valuation.

 PV= the paid up value of such equity shares;

PE = total amount of paid up equity share capital as shown in the balance-sheet.

Source:  CBDT Notification No. 61/2017/F. No. 149/136/2014-TPL dated 12.07.2017

The Author is a budding Tax Law Professional and may be reached @ shreetaxchambers@bsnl.in

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2 responses to “Final Rules – Valuation of Unquoted Equity Shares”

  1. sc jain says:

    Kindly advise if

    (1) Pvt Ltd Co having 670000 equity shares of face value Rs 10 each. Paid up capital 67 Lacs. Company incorporated on 26 June 2016

    (2) 2 Promoters holding 20 % each want to exit. they hold 20 % each
    Book value of Co is Rs 12 on 30 June 2017

    As per Govt Guidelines Share value should be Rs 14 maximum.

    Since Co hold land on lease hold 66 years. It has Rs 1 crore premimium over and above book value

    what should be approximate value of share as per guideline dt 12 July 2017 ?

    If they sell shares at higher rate above guideline any problem. Say guideline value comes @ 20 per share. but they sell @ 30 per shrare ? main question is if share sold at above guidline value will it create some problem or not ?
    If some problem what ?

  2. Rakesh Kumar Singhal says:

    Whether the new rules are applicable from sale of unquoted equity shares during this year or shall be applicable on sale from next financial year

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