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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Priya Kapasi Shah

Associate Partner | Tax & Regulatory | priya.k@server5.the-treelife.com

Heads Treelife’s Financial Advisory practice, specializing in investment structuring, cross-border transactions, and tax and regulatory advisory. Also leads on AIF setups and advisory services for GIFT IFSC.

Rohit Gandhi

Senior Associate | Tax & Regulatory | rohit.g@server5.the-treelife.com

Specializes in financial due diligence, valuations, business structuring, and income tax advisory. Contributes to the Financial Advisory team by helping startups and businesses make informed strategic decisions.

Jitesh Agarwal

Founder | jitesh@server5.the-treelife.com

Leads the VCFO, finance tax, and regulatory functions at Treelife. Responsible for the firm’s non-operational growth and providing strategic advisory in GIFT City, helping clients navigate complex regulatory landscapes effectively.