Beruflich Dokumente
Kultur Dokumente
Section 56 to 59 of the Companies Act, 2013 provides for the procedure of transfer of
shares of a company. The basic transfer procedure of shares is as follows:
1. One has to execute the share transfer deed in the share transfer Form SH 4 both
by the transferor and transferee of the shares.
2. To put stamps on the share transfer deed in accordance with the provisions of
the Indian Stamp Act and one has to pay the stamp duty to the respective state.
3. Along with the signatures of the transferor and the transferee, there must be
signatures of two witnesses who will also affix their name, address, and signature
on the deed.
4. One needs to attach the share transfer certificate or the allotment letter of the
shares to the deed and send the same to the company either by the transferor or
the transferee of the shares.
5. One needs to submit the share transfer deed to the company within 60 days from
the date of execution of the deed by or on behalf of the transferor and transferee.
6. Once the company receives it, the board of directors shall consider the same.
7. The board shall then register the transfer of shares if the documentation with
regard to the transfer of shares is in order. The board shall register such transfer
of shares only after passing a board resolution.
Valuation of shares is the process of knowing the value of company’s shares. Share
valuation is done based on quantitative techniques and share value will vary depending
on the market demand and supply. The share price of the listed companies which are
traded publicly can be known easily. But w.r.t. private companies whose shares are not
publicly traded, valuation of shares is really important and challenging. Important
instances where valuation of shares is arised:
When you are about to sell your business and you wanted to know your business
value
When you approach your bank for a loan based on shares as a security
Merger, acquisition, reconstruction, amalgamation etc – valuation of shares is
very important
When your company shares are to be converted i.e. from preference to equity
Valuation is required when implementing an employee stock ownership plan
(ESOP)
In case of litigation, where share valuation is legally required
Shares held by an Investment company
Compensating the shareholders, the company is nationalized
Sometimes, even publicly traded shares have to be valued because the market
quotation may not show the true picture or large blocks of shares are under transfer etc.
Short Term Capital Gains: To calculate STCG, these items have to be subtracted from
the total value of sales:
Brokerage or expenses associated with the selling of the asset
The asset’s purchase price
Long Term Capital Gains: To calculate LTCG, these items have to be subtracted from
the total value of sales:
Brokerage or expenses upon selling the asset
The asset’s indexed purchase price
To calculate the capital gains on shares, the purchase price of the asset and the
expenses incurred or brokerages related to the sale of the shares must be taken into
consideration. Capital gains can either be long or short-term.
Indexation applies only to assets held for long-term. Indexed cost is arrived at when
the price is adjusted against the rise in inflation in the asset’s value.
Formula for the indexed purchase price of the shares:
It is important to check if the "Sale consideration" that he receives from the buyer is at least
equal to or more than the "Fair Market Value" ("FMV") as defined under Rule 11UA of The
Income Tax Rules, of the shares sought to be transferred.
As defined under Rule 11UA, the fair market value of unquoted equity shares shall be the
value, on the valuation date, of such unquoted equity shares as determined in the following
manner under (a) or (b), at the option of the assessee, namely; -
Option (a):
The fair market value of unquoted equity shares shall be calculated simply by ascertaining
"Book value of Assets (Less) Book value of Liabilities."
For ascertaining the book value of assets, following amounts shall be excluded:
o Advance Tax, Tax deduction or collection at source or any amount of tax paid
as reduced by refund claimed under the Income Tax Act.
o any unamortized amount of deferred expenditure which does not represent
the value of any asset.
For ascertaining the book value of liabilities, following amounts shall be excluded:
Option (b):
The fair market value of the unquoted equity shares as determined by a Merchant B
anker as per Discounted Free Cash Flow Method. Earlier, a Chartered Accountant was also
permitted to determine the FMV of such equity shares. However, with effect from 24th May
2018, this right of Chartered Accountant is taken away and therefore only Merchant Banker
is authorised to determine the FMV of such equity shares.
If the transaction of transfer of shares takes place at a price which is less than the FMV,
there is a tax impact both on buyer of the shares as well as the seller. The legislation has
made an attempt to In order to ensure the full consideration is not understated in case of
transfer of unlisted shares, section 50CA
If the seller receives sale consideration on sale/transfer of unquoted equity shares which is
less than the FMV of such shares, the FMV of such shares shall be deemed to be the Sale
consideration received or accrued on such transfer of shares. Therefore, while computing
the Capital Gain on transfer of shares, FMV of share will replace the actual sale
consideration on transfer of such shares. The seller, in such case, will have to pay Capital
Gain tax on difference between FMV of the shares and cost price (or the inflation indexed
cost price, as the case may be) of such shares.
If the buyer acquires unquoted equity shares from a seller which is less than the FMV of
such shares, the difference between the FMV of the shares and actual price paid by the
buyer (in so much as it exceeds Rs. 50,000/-) will be taxable in the hands of the buyer
under the hear "Income from Other Sources."
It is important to note here that both these sections are applicable only when the seller or
the buyer, in respective cases, holds the shares as Capital Asset ie. As Investment. This
is not applicable when the shares are held as Stock in Trade.
Any such shares received (by the buyer) under the following circumstances would
be outside the ambit of section 56(2)(x) -
In the event when under section 56(2)(x), the buyer is charged to tax on the difference
between the FMP of the shares and the actual price paid by the buyer, Section 49(4) comes
to the rescue of such buyers. According to this section, whenever this buyer sells these
shares, the cost of acquisition will be taken to be value which has been considered for the
purpose of Section 56(2)(x). Thus, the buyer will be saved from double taxation on the
differential amount.
Example 1: -
Buyer: - A Seller: - B
A purchased 100 shares of unquoted company from B @ Rs.600/- per share. Thus, total
consideration is Rs. 60,000/-. B had acquired these shares @ Rs. 500/- per share i.e. Total
cost of Rs. 50,000/-. Current FMV is say Rs. 700/ Share.
When A subsequently sell shares at (say) Rs.800/- (which is also the FMV):
Thus, although the actual purchase price for A was only Rs. 60,000/- (but he had paid tax
on FMV of Rs. 70,000/-), he will be able to claim Rs. 70,000/- as cost of shares whenever
he sells these shares.