Finance Bill 2024 proposes to amend Section 56 of the Income-tax Act, specifically targeting the provisions of clause (viib) under sub-section (2). Introduced by the Finance Act of 2012, clause (viib) required companies not substantially interested by the public to pay tax on any consideration received for issuing shares that exceeded the face value of those shares. This excess amount was considered as income from other sources. Under the new amendment, effective from April 1, 2025, clause (viib) will no longer apply. This change means that from the assessment year 2025-26 onwards, companies will no longer be taxed on the premium received for issuing shares above their face value, simplifying the process and potentially encouraging investment. This move is aimed at enhancing the ease of doing business and removing outdated tax burdens on private companies.
Proposed Amendment of Section 56 of the Act vide Finance Bill, 2024
Section 56 of the Act is related to Income from other sources.
2. Vide Finance Act, 2012, a new clause (viib) was inserted in sub-section (2) of section 56 to provide that where a company, not being a company in which the public are substantially interested, receives, in any previous year, from any person being a resident, any consideration for issue of shares, if the consideration received for issue of shares exceeds the face value of such shares, the aggregate consideration received for such shares exceeding such fair market value shall be chargeable to income tax under the head “Income from other sources”.
3. It has been decided by the Government to sun-set the provisions of clause (viib) of sub-section (2) of section 56 of the Act. Consequent to said decision, amendment to clause (viib) of sub-section (2) of section 56 of the Act is being carried out to provide that the provisions of this clause shall not apply from the assessment year 2025-26.
4. This amendment is proposed to be made effective from the 1st day of April, 2025, and shall accordingly apply from assessment year 2025-26.
[Clause 23]
Amendment of section 56 of Income Tax Act, 1961 by Finance Bill, 2024.
In section 56 of the Income-tax Act, in sub-section (2), in clause (viib), after the second proviso, the following proviso shall be inserted with effect from the 1st day of April, 2025, namely:––
“Provided also that the provisions of this clause shall not apply on or after the 1st day of April, 2025.”.
Extract of Clause 23 of Finance Bill 2024
Clause 23 of the Bill seeks to amend section 56 of the Income-tax Act relating to income from other sources.
The provisions of clause (viib) of sub-section (2) of the said section provides that where a company, not being a company in which the public are substantially interested, receives, in any previous year, from any person, any consideration for issue of shares that exceeds the face value of such shares, the aggregate consideration received for such shares as exceeds the fair market value of the shares shall be chargeable to income-tax under the head “Income from other sources”.
It is also provides that this clause shall not apply where the consideration for issue of shares is received (i) by a venture capital undertaking from a venture capital company or a venture capital fund or a specified fund; or (ii) by a company from a class or classes of persons as may be notified by the Central Government in this behalf.
It is proposed to amend the said clause so as to provide that the provisions of the said clause shall not apply on or after 1st April, 2025.
This amendment will take effect from 1st April, 2025.
