s.50CA — Special provision for full value of consideration for transfer of share other than quoted share
Where a share other than a quoted share is transferred for less than its prescribed fair market value, that value is deemed to be the full value of consideration for the purposes of section 48, unless the transferor is within the class and conditions prescribed under the proviso.
The section substitutes a value for the purposes of section 48 and does not itself charge tax. The manner of determination it requires is prescribed by rule 11UAA of the Income-tax Rules, 1962, inserted by notification 61/2017 dated 12 July 2017, whose commencement clause provides that the amending rules shall come into force from the 1st day of April, 2018 and shall apply in relation to assessment year 2018-19 and subsequent years. Both limbs have to be read together, because a rule in force from 1 April 2018 reaches a transfer made on or after that date while an application in relation to assessment year 2018-19 reaches a transfer made in the financial year that began on 1 April 2017, and the tension between them is a live argument. The counterpart in the Income-tax Act, 2025 is section 79, which substitutes for the purposes of section 72 and not for the purposes of section 48. Section 79(2) disapplies section 79(1) for a prescribed class of persons on prescribed conditions, and that power has been exercised by rule 58 of the Income-tax Rules, 2026. How the figure for section 79 is arrived at is a reading of the sections with the rules rather than anything the rules state, because rule 57 of those Rules never names section 79 in the column that says which sections each entry serves.
Income-tax Act, 1961
s.50CA
Income-tax Act, 2025
s.79
In force from 1 April 2026, but s.536(2)(c) preserves the 1961 Act for tax years beginning before that date.
In short
Section 50CA provides that where the consideration received or accruing as a result of the transfer by an assessee 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 such manner as may be prescribed, the value so determined shall, for the purposes of section 48, be deemed to be the full value of consideration received or accruing as a result of such transfer. Four things have to be true before it operates. The asset must be a capital asset in the transferor's hands. The share must not be a quoted share, which the Explanation defines for the purposes of this section as a share quoted on any recognised stock exchange with regularity from time to time where the quotation is based on current transaction made in the ordinary course of business, so regularity and actual current trades are both required and a thinly traded listed share can be inside the section. The transferor must not be within the class of persons, and the conditions, prescribed under the proviso, the rule made under it being rule 11UAD of the Income-tax Rules, 1962. And the price must be below the fair market value prescribed through rule 11UAA, which applies the rule 11UA methods with the valuation date being the date of transfer, and the comparison is made share by share. A premium over cost, or over the figure the share is carried at in the books, is not the test. Where the share answers rule 11UA's expression "unquoted equity shares" the measure is the adjusted net asset value formula, under which immovable property enters at stamp duty value, jewellery and artistic work at a registered valuer's open market price, and the liabilities deducted leave out the paid-up equity capital and reserves and surplus other than those set apart towards depreciation, so a profitable sale can still be an undervalue; on a share other than an equity share which is not listed in any recognised stock exchange, a preference share included, the measure is the open market price instead, which a merchant banker's or an accountant's report may support.
What the provision does
Replaces one input in the capital gains computation and nothing else. It fixes the full value of consideration for the purposes of section 48; it does not charge tax, set a rate, decide the head of income, or touch the cost of acquisition. It reaches only an undervalue, so a transfer priced at or above the prescribed figure is outside it altogether, and it reaches only a share, so other specified securities and instruments that are not shares are outside it on the words. It does not reach a share that was not a capital asset in the transferor's hands. It says nothing about the transferee, whose own position on a receipt below fair market value is dealt with by section 56(2)(x) for a receipt on or after 1 April 2017, by section 56(2)(viia) for a receipt on or after 1 June 2010 but before 1 April 2017, within that clause's own narrower gateways, and by section 92(2)(m) of the Income-tax Act, 2025 for a tax year beginning on or after 1 April 2026. And on a buy-back in the window from 1 October 2024 to 31 March 2026 it meets a competing deeming, the proviso to section 46A, which deems the value of consideration nil for the purposes of that section; which prevails is open and is argued both ways below.
Threshold questions
- Whether rule 11UAD of the Income-tax Rules, 1962, applied to the transferor's own facts, takes him outside the section, which disposes of the matter without reaching the valuation
- Whether the shares were a capital asset in the transferor's hands, the section reaching only the transfer of a capital asset
- Whether the share is a quoted share on the Explanation's test, which asks for regularity of quotation and for current transactions and not merely for listing
- What the fair market value prescribed through rule 11UAA is, computed per share and at the date of transfer, on the sub-clause of rule 11UA that fits the instrument
- Whether the price per share is below that figure, a premium over cost or over book value not being the test
- Whether the manner of determination was prescribed for the year of the transfer, both limbs of the commencement clause of notification 61/2017 having to be read together and the tension between them being open
- Whether the year runs under the Income-tax Act, 2025, where the counterpart is section 79 substituting for the purposes of section 72 and the exempt class is prescribed by rule 58 of the Income-tax Rules, 2026
In practice
The recurring disputes.
Which deeming prevails where the section meets the proviso to section 46A on a buy-back
On a buy-back of a share other than a quoted share that took place between 1 October 2024 and 31 March 2026 and was priced below the prescribed fair market value, two deemings meet. The proviso to section 46A deems the value of consideration nil for the purposes of that section, which yields a capital loss equal to cost. This section deems the prescribed value to be the full value of consideration for the purposes of section 48, and section 46A computes the difference subject to the provisions of section 48. For the Revenue, section 46A sends its computation into section 48, this section has already fixed the full value of consideration there, and the proviso's own deeming is confined to section 46A, so what the shareholder returns is the prescribed value less his cost. The Revenue can press it further, that if the figure the proviso supplies is what the shareholder has received then the consideration this section compares with fair market value is itself nil and the trigger is met on every such buy-back. For the assessee the proviso is the later provision and the more specific, directed at a buy-back alone; the two provisions do not fix the same expression, section 46A computing on the value of consideration received by the shareholder while this section fixes the full value of consideration for the purposes of section 48; the whole price has already borne tax as dividend under section 2(22)(f), so the substitution charges part of that same sum a second time; and on the extinguishment reasoning the share tendered into a buy-back does not pass to anyone who can enjoy it. The further step fails on the confinement, because what the proviso supplies is not the consideration "received or accruing" that this section measures, which is the price the company actually paid. The Revenue answers each of the four, that this section is not the general provision but a special one on its own heading, which leaves the maxim that a special provision prevails over a general one giving neither side the argument, and the assessee with the later-provision point alone; that the words "subject to the provisions of section 48" may carry the section 48 input into section 46A; that the double charge is the design of the 2024 scheme; and that the shareholder's side of a buy-back is a transfer by him which section 46A itself proceeds on. It is open and untested. The firm's view is that the proviso governs, for the second of those reasons and not because the proviso would otherwise be deprived of effect, which on the Revenue's primary reading it would not be. The prescribed figure goes on the file either way, because what turns on the answer is a loss equal to cost against a figure that reduces that loss, removes it, or turns it into a gain.
Whether the section reaches a buy-back at all
The section is addressed to the transfer by an assessee of a capital asset, being share of a company. For the assessee, what the shareholder parts with on a buy-back is extinguished under section 68(7) of the Companies Act, 2013 rather than passing to a holder who can enjoy it, which is the reasoning that answered a charge in the company's hands in Globe Capital and in Sanjana Cryogenic, and a price fixed by resolution and offer under section 68 is not an understated price of the kind a substitution provision is aimed at. For the Revenue, the shareholder's side of a buy-back is a transfer by him, which is what this section is addressed to, and section 46A itself proceeds on that footing by deeming capital gains to arise to him; the extinguishment reasoning answered a charge on the company's acquisition of property and does not obviously answer a provision aimed at the transferor. It is open. The firm does not put the extinguishment limb high here, consistently with the view it states on section 79 of the Income-tax Act, 2025, which is that the provision is capable of applying on the mechanism, so the figure it would substitute is worked out while the price is still open.
Which years the prescribed manner reaches
The section operates on a value "determined in such manner as may be prescribed", and the rule that prescribes it is rule 11UAA, inserted by notification 61/2017 dated 12 July 2017. Its commencement clause provides that the amending rules shall come into force from the 1st day of April, 2018 and shall apply in relation to assessment year 2018-19 and subsequent years. The two limbs are in tension, because a rule in force from 1 April 2018 reaches a transfer made on or after that date, while an application in relation to assessment year 2018-19 reaches a transfer made in the financial year that began on 1 April 2017. For the Revenue the assessment-year limb governs, so the manner was prescribed for that earlier year too. For the assessee a rule expressed to come into force on a stated date cannot be applied to a transfer completed before it, and a section that operates on a value "determined in such manner as may be prescribed" has nothing to work on where no manner stood prescribed at the date of the transfer. That tension is a live argument and not a settled point. Separately, which years the section itself reaches is fixed by its own commencement, which is established for the assessment year in hand before the argument on the rule is reached.
Whether the section 115QA regime leaves room for the substitution on a pre-sunset buy-back
Where section 115QA reached the buy-back, which from 1 June 2013 meant a buy-back by a domestic company and in the charge's early years only a buy-back of shares that were not listed, the company paid the additional income-tax and the shareholder was exempt under section 10(34A). Where it did not reach the buy-back, by a company that was not a domestic company for instance, there was no exemption either and the shareholder's position fell on section 46A on the actual figures. Section 46A was not switched off in that regime, so where the price was below cost the shareholder computed a loss, and on a share other than a quoted share this section falls to be cleared, for any year of that regime it reaches, before that loss is treated as certain, with no competing deeming to meet. For the Revenue that is the shorter answer to the loss, reached before section 115QA is argued at all. For the assessee, section 115QA(4) made the company's tax the final payment of tax in respect of that income and section 115QA(5) provided that "No deduction under any other provision of this Act shall be allowed to the company or a shareholder in respect of the income which has been charged to tax under sub-section (1) or the tax thereon", which names the shareholder expressly, so the same finality that is said to deny the shareholder his loss should keep a substitution provision out of a transaction taxed once at the company's end; and the transfer points run here as they do in the later regimes, that what the shareholder parts with is extinguished rather than passing to a holder who can enjoy it, and that a price fixed by resolution and offer under the company law machinery is not an understated price. The Revenue answers each, that sub-section (5) bars a deduction against the company's distributed income and the non-obstante opening is addressed to the charge sub-section (1) creates, so neither reaches a computation of the shareholder's own capital gains; that the shareholder's side of a buy-back is a transfer by him, which this section is addressed to; and that a price the company fixes is still a price this section can test. It is open, and material only for pre-sunset years still under assessment or appeal. The firm's view on the loss itself is that it is available, because what sub-section (5) bars is a deduction against the company's distributed income and a loss computed under section 46A is not that, which is the reading that also leaves this section free to operate on its own words. What follows on a file is that the prescribed figure is computed and kept, because an assessing officer who reads this section as reaching the transfer will compute from it.