I have purchased 50000 shares from a private limited company at a discounted price of Rs.14 per share in March 2015. On 31st March, 2015, as per company valuation, the book value per share was Rs.29. Am I liable to pay income tax on the unrealised discount of Rs.15 per share?
Section 56(2)(vii) is a charging section which creates the charge on a transaction by providing that where assessee receives the shares at a value lower than its FMV then, gain made by the assessee on receipt of such shares will be chargeable as income of the previous year.
If such shares are received for a consideration lower than the fair market value then, difference would be taxable in the hands of recipient of shares.
In your case as per our view the difference is taxable.
You do not have to pay tax on the value of shares at Rs. 29/- per share. The tax will arise on capital gains only on transfer of such shares.
As per section 56, unlisted shares should be valued by a chartered accountant as per the prescribed method. I did not understand the meaning company valuation. The valuation should meet the procedure prescribed by Income Tax Act.
