Share issue by unlised company

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This discussion explores the income tax consequences when an existing private limited company issues shares at face value, even if it's lower than the Fair Market Value (FMV). While the company itself faces no tax, the transferee (recipient) may be liable for tax on the difference between the FMV and the issue price under Section 56(2)(x) of the Income Tax Act, taxed at their applicable slab rate.

Sonu Khandare

Sonu Khandare (Querist)

25 March 2025 Hi All

If existing private company issue shares at face value (even though FMV is higher than FV), what are the income tax implications of the same in the hands of transferor and transferee?

Thanks in advance.

Dhirajlal Rambhia

Dhirajlal Rambhia (Expert)

25 March 2025 For transferor it may not be taxed if first issue, but for transferee the tax on difference value will be liable under sec. 56(2) IT act.

Kowsalya

Kowsalya (Expert)

26 March 2025 Hi
As you have mentioned that it is the existing pvt ltd Company ( its not an issue at the time of incorporation) , if the shares are issued at a price less than the FMV, there will be no tax implications in the hands of the company.
But in the hands of the transferee, the difference between the FMV and the issue price will be taxed under Income from Other Sources under Section 56(2)(x) of the Income Tax Act at the applicable slab rate.

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