Special provision for full value of consideration for transfer of share other than quoted share
[As per the Income Tax Act, 2025 (this Act) w.e.f. 1st April, 2026.]
Section 79(1) of Income Tax Act 2025
79(1) If the consideration received or accruing from the transfer 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 the manner as prescribed, the value so determined shall be deemed as the full value of consideration received or accruing as a result of the transfer for the purposes of computing income under the head “Capital gains”.
Section 79(2) of Income Tax Act 2025
79(2) The provisions of sub-section (1) 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 prescribed.
Section 79(3) of Income Tax Act 2025
79(3) In 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.
FAQs on Section 79 of Income Tax Act 2025
1. What is the special provision for full value of consideration for transfer of shares other than quoted shares under the Income Tax Act, 2025?
If the consideration received or accruing from the transfer of a share of a company (other than a quoted share) is less than its fair market value (FMV) determined as prescribed, the FMV will be deemed to be the full value of consideration for computing capital gains.
2. From when is this special provision applicable?
This provision is applicable with effect from 1st April, 2026.
3. Which section of the Income Tax Act, 2025 deals with this special provision?
Section 79(1) of the Income Tax Act, 2025 deals with this special provision.
4. What happens if the actual consideration is lower than the fair market value?
The fair market value determined as per the prescribed manner will be treated as the full value of consideration for the purpose of computing income under the head “Capital gains.”
5. To which type of shares does Section 79(1) apply?
It applies to shares of a company other than a quoted share.
6. What is meant by a “quoted share” under Section 79?
A “quoted share” means a share quoted on any recognised stock exchange with regularity where the quotation is based on current transactions made in the ordinary course of business.
7. How is the fair market value determined for unquoted shares?
The fair market value is determined in the manner prescribed under the rules notified under the Income Tax Act, 2025.
8. Is there any exemption from the application of Section 79(1)?
Yes, Section 79(2) provides that the provision of Section 79(1) shall not apply to transfers made by such class of persons and subject to such conditions as may be prescribed.
9. Who are the persons exempted under Section 79(2)?
The specific classes of persons and conditions for exemption will be prescribed through rules notified by the Central Board of Direct Taxes (CBDT).
10. Does Section 79 apply to transfers of quoted shares?
No, Section 79 applies only to shares other than quoted shares.
11. Why has the government introduced this provision?
The provision aims to prevent tax evasion by ensuring that undervaluation of unquoted shares does not lead to reduction in capital gains tax liability.
12. If a share is occasionally quoted but not regularly, will it be treated as a quoted share?
No, a share must be quoted with regularity based on current transactions in the ordinary course of business to qualify as a quoted share.
13. Will Section 79 apply even if the share transfer is made between related parties?
Yes, Section 79 will apply regardless of the relationship between transferor and transferee if the share is unquoted and the consideration is less than the fair market value.
14. Is there any separate valuation method prescribed for determining FMV under Section 79?
Yes, a separate valuation methodology will be prescribed in the rules framed under the Act.
15. Will deemed consideration impact the calculation of both short-term and long-term capital gains?
Yes, deemed consideration will impact the calculation of both short-term and long-term capital gains under the Income Tax Act, 2025.
16. In case of part consideration in cash and part in kind, how will Section 79 apply?
The total consideration, whether in cash or kind, will be compared with the fair market value, and if it is less, the FMV will be deemed as the full value of consideration.
17. Can the assessee challenge the fair market value determined under the prescribed rules?
The assessee may challenge the valuation through appropriate legal remedies if they believe the FMV determined is not correct, subject to the provisions of the Act.
18. What is the impact of Section 79 on share transactions for startups or private companies?
Section 79 could significantly impact startups and private companies where share valuations may fluctuate, as FMV will override actual transaction value if it is higher.
19. Will Section 79 affect gift transactions of shares?
No, Section 79 is applicable for transfer involving consideration. Gifts are generally governed by other provisions such as those dealing with transactions without consideration.
20. Does this provision affect only the seller or also the buyer?
Primarily, it affects the seller for the purpose of computing capital gains, but the buyer may also have tax implications under other sections if shares are purchased below FMV.
