CBDT proposes fair market value for taxing unquoted shares

The revenue department today proposed to levy capital gains tax on unquoted shares at 'fair market value' in place of the current practice of charging it on the basis value entered in the books of a firm.
The Finance Act, 2017 passed by Parliament has inserted a new section the Income Tax Act (effective from April next year) for valuation of unquoted shares on fair market value for computing capital gains tax.
Unquoted shares are those which are not traded on recognised stock exchanges.
In pursuance of the amendment in the Finance Act, the Central Board of Direct Taxes (CBDT) today released draft rules and invited comments from the stakeholders by May 19.

"The valuation norms for unquoted shares is proposed to be changed radically," said Abhishek Goenka, Partner and Leader tax consultancy firm PwC.
Accordingly, he said any transaction in unquoted shares will now have to be carried out at its fair value and if done at lower than this, both buyer and seller will be liable to additional tax based on fair value.

He also opined that applying a fair value basis for unquoted shares will create subjectivity, particularly for businesses where business models are unique and untested.
The tax department applies the fair market value formula for levy capital gains tax on transfer of assets like jewellery and artistic works.

In case of immovable property, the stamp duty value is taken into consideration for determining taxability.