Insights on Equity Share Transfers

Do you hold equity shares in a private limited company that has invested in immovable property or shares of another company? It’s essential to understand how Fair Market Value (FMV) is calculated for equity share transfers of such private limited company.

Under the Income Tax Act, equity share transfers must be executed at FMV, as determined by Rule 11UA. According to Rule 11UA of the Income Tax Rules, the FMV is calculated based on the Net Asset Value (NAV).

The NAV is calculated by subtracting total liabilities from total assets. However, special consideration is required for:
1. Investments in Shares and Securities: These must be valued at their fair market value, not book value.
2. Investments in Immovable Property: The value should be the stamp duty value adopted or assessed by any governmental authority. This necessitates obtaining a valuation report from a registered valuer (L&B).

For companies and stakeholders, understanding these nuances is crucial.

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