| Question And Answer | |
|---|---|
| Subject: | Issue of shares to promoters |
| Category: | Income-Tax |
| Querist: | Pooja |
| Answered by: | Mr . H. N. Motiwalla |
| Tags: | Issue of shares, Issue of shares to promoters |
| Date: | March 4, 2024 |
Can a private limited company issue shares to a founder at NAV method or at facevalue if the company has already raised substantial amount of money and has a 250 times valuation compared to the NAV? Can the company do rights issue and allot shares to promoter? Such shares are given as a compensation to her committment.
A Private Ltd can make initial issue to promoters at face value. Later on, when company create genuine reserve out of profit, it can issue share to promotes as well as members to its Net Asset Value (NAV) method. Net Asset Value method has ben prescribed by Rule 11UA of the Income tax Rules 1962..
Last part of the query is not clear. However, if shares are issued to the promoters or members free or less than Fair Market Value, then, under section 56(2)(x) of the Income tax Act, the same will be taxable in the hands of the promoters or members
Section 56(2) reads as under:
“In particular, and without prejudice to the generally of the provisions of sub section (1), the following incomes, shall be chargeable to income tax under the head :Income from other sources”, namely –
(i) —–
(ia) —–
(x) Where any person receives, in any previous year, from any person or persons on or after the 1st day of April, 2017
(a) —-
(b) —–
(c) Any property, other than immovable property-
(A) Without consideration, the aggregate fair market value of which exceeds fifty thousand rupees, the whole of the aggregate fair market value of such property;
(B) For a consideration which is less than the aggregate fair market value of the property by an amount exceeding fifty thousand rupees, the aggregate fair market value of such property as exceeds such consideration.