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Section 56(2)(viib) - Issuance of shares at a price higher than its Fair Market Value ("FMV")

 

Issuance of shares at a price higher than its Fair Market Value 

Money is important for getting the business up and running, the importance of money in business cannot be exaggerated. Until the company is profitable, it is highly dependent on funding for its day-to-day operations.

Private Companies usually raise funds by way of issuance of shares or by availing financial assistance in the form of debt. It is important for corporates to comply with the provisions of Sec 42, Sec 62 and the rules made thereunder before issuing shares. Further, it is also important to ensure compliance with the provisions contained under Section 56(2)(viib) of the Income Tax Act, 1961.

Section 56(2)(viib) states that in case a company in which the public is not substantially interested issues shares at a price greater than the face value of such shares and the aggregate consideration received from a resident person for such shares exceeds their Fair Market Value, then the amount received in excess of Fair Market Value shall be taxed under the head Income from other sources.




Kind Attention: The information provided herein is for education purpose only and the author assumes no responsibility or liability for any errors or omissions in the content.




 




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