Tax on purchase of unlisted shares below nominal value

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?
Asked 1 year ago in Income Tax from CHENNAI, Tamil Nadu
Book value will keep changing. No tax is payable on these fluctuations. Tax implication will come at the time of actual sale of share
Shashank Surana
CA, Chennai
60 Answers
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Applicability of that section is based upon certain conditions. It is not applicable in all cases. My first answer was based upon the assumption that the shares were purchased at FMV
Shashank Surana
CA, Chennai
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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. 
Shyam Sunder Modani
CA, Hyderabad
955 Answers
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With reference to your supplementary question whether 56(2)(vii) is attracted, the simple answer is "yes". However, if it is a regular commercial arms length transaction, I think the application of this section can be challenged. Otherwise, the shareholders subscribing to rights issue or getting bonus shares may also have to offer income under this notional income. 
B Vijaya Kumar
CA, Hyderabad
290 Answers
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Dear Sir,

Firstly it is good to see that people have now started getting educated about taxation.

As you stated, you will not be Taxed for Capital Gain as you have only purchased the Shares but there is No Sale as of now.

But you will be taxed u/s 56 (2) (vii) for the differential value between the FMV & the COA. I would also bring to your notice that if the Amount of Gain you have made through discount is Less than 50,000/- in that Financial Year then you will be exempt even u/s 56 (2) (vii)
Rohit R Sharma
CA, Mumbai
719 Answers
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If the comp any valuation is as per procedure laid down by Income tax Act, then you will have to pay income tax for the difference amount between market value and consideration paid by you.
Vijay N. Kale
CA, Hyderabad
248 Answers
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