Income Tax - Share premium in excess of fair market value to be treated as income - Determination of Fair Market Value of shares: Rule 11U amended
A new Clause (viiib) was inserted in Section 56(2) of the Income Tax Act in the Finance Act 2012, effective from 1st April 2013.
The Budget Memorandum explained:
Section 56(2) provides for the specific category of incomes that shall be chargeable to income-tax under the head "Income from other sources".
It is proposed to insert a new clause in section 56(2). The new clause will apply 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. In such a case if the consideration received for issue of shares 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. However, this provision shall not apply where the consideration for issue of shares is received by a venture capital undertaking from a venture capital company or a venture capital fund.
The FM in his Budget speech explained this as ‘ a measure to deter the generation and use of unaccounted money '.
Now the CBDT has amended Rule 11UA of the Income Tax Rules for determination of the Fair Market value.
CBDT Notification No. 52/2012, Dated: November 29, 2012