New Clause 47 in Tax Audit Form 26 brings unquoted share transactions under sharper scrutiny.
Applicable from Tax Year 2026-27, the New Income Tax Act, 2025 now requires Tax Auditors to specifically report all purchases and sales of unquoted shares during the year — a disclosure not required under the earlier Form 3CD.
A new clause 47 has been inserted in the Tax Audit Form No.26 applicable from the Tax Year 2026-27. The said clause requires the Tax Auditor to report any transaction in unquoted shares during the year by the tax payer.
This is entirely new clause and under the previous Form 3CD there was no such requirement of specifically reporting transactions in unquoted share during the year.
Both Purchase and Sale of unquoted shares are covered within the said reporting requirement. The ultimate objective of the said clause appears to be to identify and tax difference between the Fair Market Value of Shares and the Transaction Price of the unquoted shares bought and sold during the year.
Purchase/Acquisition of Unquoted shares at less than Fair Market Value (‘FMV’):
If the tax payer has acquired or purchased any unquoted shares at less than FMV, the difference is taxable as Income chargeable to tax under section 92(2)(m) of the New Act. The said section is similar to section 56(2)(x) of the Old Act. The Tax Auditor is required to report the said difference under this clause. The Tax Auditor will have to obtain valuation report in order to arrive at FMV of the unquoted shares, compare it with the purchase price and report the difference under this clause.
Sale/Transfer of Unquoted shares at less than Fair Market Value (‘FMV’):
If the tax payer has sold or transferred any unquoted shares at less than FMV, then the FMV shall be deemed to be the full value of consideration received and same shall be substituted for the sale price in order to work out Capital Gain arising in respect of the said transaction; as per section 79 of the New Act. The said section is similar to section 50CA of the Old Act. The Tax Auditor is required to report the said difference under this clause. The Tax Auditor will have to obtain valuation report in order to arrive at FMV of the unquoted shares, compare it with the transaction/sale price and report the difference under this clause.
The scope of work for the Tax Auditor has increased manifold under the New Act and Rules. Practitioners will need to strengthen their infrastructure, team and educate clients in order to ensure that proper and complete reporting and disclosure are made in the Tax Audit Report. Firms should consider updating their audit checklists and engagement letters to incorporate valuation coordination as a standard step for clients holding unquoted shares.
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