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Section 50CA of Income Tax Act

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October 28, 2021

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5 mins read

Section 50CA of Income Tax Act deals with certain special provision,  for computation of full value of consideration for transfer of unquoted shares.

Relevant Text of the Section 50CA : –

Where the consideration received or accruing as a result of the transfer by an assessee of a capital asset, being share of a company other than a quoted share, is less than the fair market value of such share determined in such manner as may be prescribed, the value so determined shall, for the purposes of section 48, be deemed to be the full value of consideration received or accruing as a result of such transfer:

Provided that the provisions of this section shall not apply to any consideration received or accruing as a result of transfer by such class of persons and subject to such conditions as may be prescribed.

Explanation.—For the purposes of this section, “quoted share” means the share quoted on any recognised stock exchange with regularity from time to time, where the quotation of such share is based on current transaction made in the ordinary course of business.

The key features of Section 50CA of Income Tax Act are as under : –

  • Section 50CA of Income Tax Act is applicable on both resident and non-resident. If you are a non-resident who wants to evaluate how this may impact your capital gains tax, you can contact us for evaluating this in detail HERE.
  • There is a transfer of shares of a company, other than a quoted share . “Quoted share” means the share quoted on any recognised stock exchange with regularity from time to time. Such shares can be equity shares or preference shares or compulsorily convertible preference shares ;
  • The consideration  for  transfer  of such shares, is less than the prescribed fair market value of such shares. The fair value has to be computed in prescribed  manner as per Rule 11UA . If you need assistance with review of methodology your computation of Rule 11UA, you can contact us for evaluating this in detail HERE.

Consequences if Section 50CA of Income Tax Act is applicable

If these two conditions are satisfied, the fair value  computed as per Rule 11UA is deemed as full value of consideration  and capital gains will be computed based on such value, even though the cash/ kind value received by the assessee is lower.

Certain class of persons are exempt from the applicability of these provisions , subject to prescribed conditions .

Example on 50CA of Income Tax Act

ABC International (USA), earns long-term capital gains on sale of 10,000 shares of Rahul Vaid Pvt Limited, at a price of Rs. 100 . The fair value  computed  as per Rule 11UA is Rs. 120. If the Cost of acquisition of such shares is Rs. 10 (assume no forex benefit applicable) and no indexation is required, total deemed consideration   for the purpose of Section 50CA shall be ?

Answer

1,200,000

Frequently Asked Questions (FAQ)

1. Are provision of Section 50CA of Income Tax Act applicable on Non-resident ?

Yes, Section 50CA of Income Tax Act is applicable to both resident and Non-resident

2. Do Non-resident get benefit of Treaty, while computing income under Section 50CA of Income Tax Act ?

Yes, subject to certain conditions, Non-resident get benefit of Treaty.

Arinjay Jain

Bio of author

Arinjay is a Chartered Accountant with more than 20 years of post-qualification experience. He worked as Director, in the M&A Tax Division at KPMG in India. Presently, he is advising several MNCs in UAE on Economic Substance Regulations and impact of the UAE Corporate Tax Law on their business and clients across globe on International Tax issues . He is a well recognised Trainer of International Tax and UAE Corporate Tax. The areas of service include the following : - Advise and Compliance relating to International Tax Issues; Advise relating to UAE Corporate Tax Issues; Advise and Compliance relating to UAE Economic Substance Regulations; Advise and Compliance relating to Indian Income Tax Issues; Other connected matters from a Regulatory perspective.

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