hi,
my boss wants to transfer the shares of a private limited company to a foreign company.what are the tax imploications?
how do we calculate capital gains tax.
thanks an regards
CA. Kunal Lakhotia
(ACA)
(1006 Points)
Replied 22 February 2013
| VALUATION OF SHARES AS PER INCOME TAX RULES, 1962 | ||||||||
| The Rule 11UA of the said rules shall be renumbered as sub-rule (1) thereof,- | ||||||||
| (i) in sub-rule (1) as so renumbered, in clause (c), for sub-clause (b), the following shall | ||||||||
| be substituted, namely:- | ||||||||
| “(b) 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, namely:— | ||||||||
| the fair market value of unquoted equity shares = (A-L) | X (PV) | |||||||
| (PE) | ||||||||
| where, | ||||||||
| A = book value of the assets in the balance-sheet as reduced by any amount of tax | ||||||||
| paid as deduction or collection at source or as advance tax payment as | ||||||||
| reduced by the amount of tax claimed as refund under the Income-tax Act | ||||||||
| and any amount shown in the balance-sheet as asset including the | ||||||||
| unamortised amount of deferred expenditure which does not represent the | ||||||||
| value of any asset; | ||||||||
| L = book value of liabilities shown in the balance-sheet, but not including the | ||||||||
| following amounts, namely:— | ||||||||
| (i) the paid-up capital in respect of equity shares; | ||||||||
| (ii) the amount set apart for payment of dividends on preference shares and | ||||||||
| equity shares where such dividends have not been declared before the date of | ||||||||
| transfer at a general body meeting of the company; | ||||||||
| (iii) reserves and surplus, by whatever name called, even if the resulting | ||||||||
| figure is negative, other than those set apart towards depreciation; | ||||||||
| (iv) any amount representing provision for taxation, other than amount of tax | ||||||||
| paid as deduction or collection at source or as advance tax payment as | ||||||||
| reduced by the amount of tax claimed as refund under the Income-tax Act, to | ||||||||
| the extent of the excess over the tax payable with reference to the book profits | ||||||||
| in accordance with the law applicable thereto; | ||||||||
| (v) any amount representing provisions made for meeting liabilities, other | ||||||||
| than ascertained liabilities; | ||||||||
| (vi) any amount representing contingent liabilities other than arrears of | ||||||||
| dividends payable in respect of cumulative preference shares; | ||||||||
| PE = total amount of paid up equity share capital as shown in the balance-sheet; | ||||||||
| PV = the paid up value of such equity shares;”; | ||||||||
| (ii) after the sub-rule (1) as so renumbered, the following sub-rule shall be inserted, | ||||||||
| namely:- | ||||||||
| “(2) Notwithstanding anything contained in sub-clause (b) of clause (c) of sub-rule (1), | ||||||||
| the fair market value of unquoted equity shares for the purposes of sub-clause (i) of | ||||||||
| clause (a) of Explanation to clause (viib) of sub-section (2) of section 56 shall be the | ||||||||
| value, on the valuation date, of such unquoted equity shares as determined in the | ||||||||
| following manner under clause (a) or clause (b), at the option of the assessee, | ||||||||
| namely:— | ||||||||
| the fair market value of unquoted equity shares = (A-L) | X (PV) | |||||||
| (PE) | ||||||||
| where, | ||||||||
| A = book value of the assets in the balance-sheet as reduced by any amount of tax | ||||||||
| paid as deduction or collection at source or as advance tax payment as | ||||||||
| reduced by the amount of tax claimed as refund under the Income-tax Act | ||||||||
| and any amount shown in the balance-sheet as asset including the | ||||||||
| unamortised amount of deferred expenditure which does not represent the | ||||||||
| value of any asset; | ||||||||
| L = book value of liabilities shown in the balance-sheet, but not including the | ||||||||
| following amounts, namely:— | ||||||||
| (i) the paid-up capital in respect of equity shares; | ||||||||
| (ii) the amount set apart for payment of dividends on preference shares and | ||||||||
| equity shares where such dividends have not been declared before the date of | ||||||||
| transfer at a general body meeting of the company; | ||||||||
| (iii) reserves and surplus, by whatever name called, even if the resulting | ||||||||
| figure is negative, other than those set apart towards depreciation; | ||||||||
| (iv) any amount representing provision for taxation, other than amount of tax | ||||||||
| paid as deduction or collection at source or as advance tax payment as | ||||||||
| reduced by the amount of tax claimed as refund as refund under the Incometax | ||||||||
| Act, to the extent of the excess over the tax payable with reference to the | ||||||||
| book profits in accordance with the law applicable thereto; | ||||||||
| (v) any amount representing provisions made for meeting liabilities, other | ||||||||
| than ascertained liabilities; | ||||||||
| (vi) any amount representing contingent liabilities other than arrears of | ||||||||
| dividends payable in respect of cumulative preference shares; | ||||||||
| PE = total amount of paid up equity share capital as shown in the balance-sheet; | ||||||||
| PV = the paid up value of such equity shares; or | ||||||||
| (b) the fair market value of the unquoted equity shares determined by a merchant | ||||||||
| banker or an accountant as per the Discounted Free Cash Flow method.”. | ||||||||
Nikhil Kaushik
(Fellow CA)
(85660 Points)
Replied 23 February 2013
the transaction is taxable in india in the hands of the seller. the procedure for computation has been explained in detail by CA Kunal
Kindly also ensure compliance with FEMA and FDI norms. filing of FC-GPR etc with RBI should be done in time
Shresh
(CA Job)
(51 Points)
Replied 25 February 2013
thankyou CA Kunal Lakhotia & nikhil.i would like to add few more details to my above question.
the comapany is a private ltd co.it's a fully owned subsidiary of a foreign comapny.now the directors want to transfer few shares to another foreign company.so when calculating capital gains are we suppossed to go by the above mentioned manner or is there any change.and also what are the other tax and rbi compliances?please advice.
thanks & regards
shresh
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