Income tax on share premium for public limited (not listed)

Share premium is a capital receipt contributed by the share holders. and hence it is not treated as income under the head section 2 (24) nor even treated as profit or gain under the head business or profession under section 28.

there fore it is not an income of the compny (whether it is listed or not, nothing matter) and hence it will not attract income tax under head other source or anywhere.

Originally posted by : Kalavathy
	Dear Members, I am new to this forum I would appreciate your hep. I am working for a public limited company - please note we are *not* listed in stock market. Shares are closely held by a small group of people. Last financial year (FY Apr 2012 - Mar 2013) we had received investment and portion of that investment came in as share premuim does the share premium attract income tax under "other sources" ? Please note our company is public limited but *not* listed in stock exchange Kala

Hi,

One of the major changes in the Finance Act of 2012 is the introduction of Section 56(2)(viib) of the Income Tax Act, 1961 (“Act”), which provides that if a company in which public is not substantially interested, issues shares at a premium, then the aggregate amount of premium, over and above the fair market value of shares will be subject to income tax.

The Central Board of Direct Taxes (“CDBT”) vide notification no. 52/2012 (“Notification”), dated 29 November, 2012, has amended Rule 11U and 11UA of the Rules. Pursuant to the Notification the companies can use Discounted Cash Flow (“DCF”) method of valuation, for determining fair market value of unquoted equity shares, for the purposes of Section 56(2)(viib) of the Act.

well you need to calculate the fair market price of the share of the company.

There are few methods to calculate the same and need to check which is most appropriate to your concern. if the premium received is greater than the FMV than the greater amount is subject to Income tax.

In case of furthur information contact

Gaurav Mittal

+91-9971312299

Hello Sourabh & Gaurav

I really appreciate your help. I was able to convince our auditor based on your input. It helped to move 65lakhs from taxable income to non-taxable category as we had DCF valuation certification when we issued the share premium.

Thanks once again.

Kala