| Question And Answer | |
|---|---|
| Subject: | Capital gains, sale of equity shares ? |
| Category: | Income-Tax |
| Querist: | Ravi aiftp |
| Answered by: | Chartered Accountant ., Mr . H. N. Motiwalla |
| Tags: | Capital Gains, sale of equity shares |
| Date: | January 16, 2024 |
The founders of a Start-up company sold 51% of their equity stake in a company to a strategic buyer in FY 2023-24. The total consideration for transfer of shares was agreed at Rs. 25 crores
As per the terms of the deal, the founders are required to stay with the company for next 5 years after which their balance stake would be purchased. The founders are eligible for an additional consideration of Rs 5 crores at the end of the third year provided the revenue projections as per business plan are met.
- While filing the tax return for 2024-25, and computing capital gains, what should be the total value of consideration – should it be Rs. 25 crores or Rs. 30 crores?
- If Rs. 5 crores is not to be taxed in year 1, should it be taxed in the year of 2027/28 of actual receipt or should the original return be revised after the earn out is received?
- Can any exemption be claimed against earn out of Rs. 5 crore, 3 years investment time limit from the original share transfer date would be Over?
While filing the tax return for F.Y. 2023-24 i.e. for A.Y 2024/25, and computing capital gains, total value of consideration should be taken at Rs. 25/- crores. As balance of Rs. 5 crores would be due and accrue only at the end of three year i.e. March 31, 2027. As the founders are eligible for this additional consideration at the end of thirty year provided the revenue projections as per the business plan are met, even though the founders are confident of meeting the business projections.
• Yes, it would be taxed in the A.Y. 2027/28, as the amount would be due to them on fulfillment of business plan, irrespective of receipt of the amount.
• No benefit u/s. 80IAC would be available. It is available only for any of the three consecutive years out of ten years beginning from the year in which the eligible start up is incorporated.
Source : AIFTP Journal December 23