Valuing shares under the Income Tax Act helps determine tax liabilities arising from transactions involving unlisted shares. This ensures fair and consistent taxation for companies and shareholders.

Unlike publicly traded shares with readily available market data, valuing unlisted shares requires a more specialized approach. The Income Tax Act outlines specific methodologies for determining the fair market value of these shares.

Share valuation under the Income Tax Act is often required for transactions like issuing shares at a premium, transferring shares between related parties, or calculating capital gains tax on share sales.

The valuation process considers various factors, including the company’s financial health, future growth prospects, industry benchmarks, and, in some cases, the expertise of qualified valuers.

A proper valuation minimizes potential tax disputes, ensures accurate tax assessments, and promotes transparent and compliant tax practices for companies and shareholders.

Rule 11UA prescribes the methods for valuing various assets, including unquoted shares (shares of companies not listed on a recognized stock exchange) for specific anti-abuse provisions in the Income Tax Act.

For unquoted shares, the Income Tax Act, specifically Rule 11UA(1)(c), defines fair value as the price the shares would fetch if sold in the open market on the valuation date. This essentially aligns with the broader definition of fair market value

Section 56 of the Income Tax Act deals with the tax implications of receiving income from sources other than your salary.

Section 57 of the Income Tax Act deals with the concept of “capital gains.” Capital gains refer to the profit earned from the sale of capital assets like shares, property, etc.