Question And Answer
Subject: Taxation on Conversion of Loan into Redeemable Preference Shares at Par
Querist: Mahesh
Answered by:
Tags: , ,
Date: July 12, 2022
Query asked by Mahesh

Company “A” has assigned the loan (a fully written-off loan account) to the NBFC in the year 2021 at a discounted value (lower value as compared to the original debt obligation). The loan was taken over by NBFC because NBFC is hope full of that it will recover the higher amount in the future. The Borrower against the loan (original debt) has allotted redeemable preference shares (RPS) of Rs 100/- each at par to the NBFC. The Borrower’s net worth pre-allotment of RPS is negative. The query is  What will be the tax impact on NBFC when the loan is converted into Redeemable preference shares. Whether the difference between the discounted amount of loan (assigned value) and shares allotted at par by converting original debt will be considered as taxable income.

File Uploaded: Not Available

The valuation of shares has to be supported by a share valuation report prepared in accordance with Rule 11UA of the Income-tax Rules, 1962.

If there is a difference between the value of shares allotted and the assigned value of loan (the consideration), the same will be taxable under section 56(2)(x) of the Act.

Disclaimer: This article is only for general information and is not intended to provide legal advice. Readers desiring legal advice should consult with an experienced professional to understand the current law and how it may apply to the facts of their case. Neither the author nor and its affiliates accepts any liabilities for any loss or damage of any kind arising out of any inaccurate or incomplete information in this article nor for any actions taken in reliance thereon. No part of this document should be distributed or copied (except for personal, non-commercial use) without express written permission of

Leave a Reply

Your email address will not be published. Required fields are marked *