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BUDGET 2012 - Income from other sources

CSSwati Rawat
2012 Budget: New Tax Rules on Share Payments Above Face Value and Gifts Over Rs. 50,000 for Individuals/HUFs The 2012 budget introduces taxation measures for companies not substantially owned by the public. If such a company receives payment from a resident for shares exceeding their face value, the excess amount is taxable. The fair market value (FMV) of shares is determined by either a prescribed method or based on asset value, including intangible assets, on the issue date. This rule does not apply to shares issued by venture capital undertakings. Additionally, any property or sum over Rs. 50,000 received without consideration by an individual or Hindu Undivided Family (HUF) is taxable unless from a defined 'relative,' with the term now including HUF members, effective retroactively from October 1, 2009. (AI Summary)

BUDGET 2012

Income from other sources

Taxation of consideration for issue of shares in excess of FMV

•    Where a company (in which public are not substantially interested) receives from a resident, consideration for issue of shares exceeding the face value, such consideration in excess of the FMV will be taxable.

FMV of shares to be higher of:

•    value as per prescribed method; or

•    value based on assets including intangible assets, on the date of issue of shares, as substantiated by the company to the satisfaction of the Revenue authorities.

This provision is not applicable to consideration for issue of shares received by VCU from a VCC or VCF.
Taxation of transactions without consideration or for inadequate consideration
•    Presently, any sum or property, the aggregate value of which exceeds Rs. 50,000 in a year, received by an Individual or HUF without consideration is taxable in the hands of the Individual or HUF unless it is received from a “relative” as defined under the Income-tax Act.
The definition of the term “relative” has been amended to include members of the HUF.
The above amendment will be effective retrospectively from 1 October 2009.

Income Tax
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