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Issue of equity shares by private limited company

Tax queries 5507 views 2 replies

Rajeev kumar Nayak

ACS

283 Points Joined April 2010

Good Morning to all of you,

I have a small query in respect to issue of equity shaes by private limited company.

If a private limited company wants to issue equity shares at premium then, what compliance it should keep in mind for doing so especially after inseertion of section 56(2)(vii)(b) of the Income Tax Act[Taxability in hands of Company if shaers is issued at premium and at a higher price than Fair market value] . At how much premium company can issue the shares.

Thanks in advance

Regards

Rajeev Nayak

09873457184

Replies (2)

Hanish Chaudhary

Chartered Accountant

333 Points Joined September 2008

@ Rajeev

For the purpose of Section 56 of Income Tax Act, you may refer to Rule 11UA for determination of fair market value. It specifically list the procedure for valuation of shares both quoted and unquoted shares. Once you get the fair market value, you can work our the premium to be collected on issue of equity shares without attracting Section 56 (2)(viib) of Income Tax Act.