CBDT Exempts Startups shares issued above FMV to residents from the deeming taxation provisions of section 56(2)(viib)

CBDT Exempts Startups shares issued above FMV

CBDT has notified tax exemption on investments above fair market rate for startups. Now a resident can purchase shares in startups companies at higher than fair value without having to pay tax under the provisions of section 56(2)(viib).

The section 56(2)(viia) provides that where a company (not being a company in which the public are substantially interested) issues shares to a resident at a price consideration which is more than the face value of the shares, then the consideration so received which exceeds the fair market value of the shares shall be deemed to be the income of the company and taxed as income from other sources.

Government Of India
Ministry Of Finance
Department Of Revenue
Central Board Of Direct Taxes
New Delhi

Notification No. 45/2016

Dated: June 14, 2016

In exercise of the powers conferred by the clause (ii) of the proviso to clause (viib) of sub-section (2) of section 56 of the Income-tax Act, 1961 (43 of 1961), the Central Government, hereby notifies the ‘classes of persons’ for the purposes of the said clause as being the ‘person’ defined under sub-section (31) of section 2 of the said Act, being resident, who make any consideration exceeding the face value for issues of shares of a ‘startup’ company.

Explanation. – For the purposes of this notification, “startup” shall mean a company in which the public are not substantially interested and which fulfills the conditions specified in the notification of the Government of India, Ministry of Commerce and Industry. Department of Industrial Policy and Promotion, number G.S.R. 180(E), dated the 17th February, 2016, published in the Gazette of India, Extraordinary, part II, section 3, sub-section (i), dated the 18th February, 2016.

(Rohit Garg)
Deputy Secretary to the Govt. of India