Question 1

What approvals are needed for a share transfer in a private company?

Accepted Answer

Private company Articles typically contain pre-emption rights — existing shareholders must be offered shares first at the agreed price. Board approval is needed under Section 56 for transmission of shares. The transferor and transferee execute Form SH-4 (share transfer deed) before presentation to the Board. If any shareholder objects, the Board has discretion to refuse if the Articles permit it — Section 58(3) allows a member to apply to NCLT if refused.

Question 2

What is the stamp duty on share transfers?

Accepted Answer

Stamp duty under the Indian Stamp Act 1899 (as amended by Finance Act 2019, effective 1 July 2020): 0.015% of the consideration or NAV (whichever is higher) on transfer of dematerialised shares. For physical shares: ₹25 per ₹1,000 of consideration. The duty is collected by depositories at the time of off-market transfer instructions. No separate physical stamp on Form SH-4 — the electronic collection via NSDL/CDSL satisfies the stamp requirement.

Question 3

How is a share buyback structured for a private company?

Accepted Answer

Section 68 of the Companies Act 2013: buyback out of free reserves, securities premium, or proceeds of fresh issue (not fresh issue proceeds for same kind). Limits: (a) up to 10% of paid-up equity and free reserves by Board resolution; (b) up to 25% by special resolution. Gap between two buybacks: minimum 1 year. Post-buyback: file Form SH-11 within 30 days, file return in Form SH-9, extinguish the bought-back shares within 7 days.

Question 4

What are the tax implications of a share buyback?

Accepted Answer

Section 115QA imposes Buyback Distribution Tax at 20% (plus surcharge and cess) on the distributed income (buyback price minus issue price) — paid by the company. Finance Act 2024 (effective 1 October 2024) has abolished Section 115QA: buyback proceeds will now be taxable as dividend in shareholders' hands. The CA must advise based on the applicable regime at the time of the buyback.

Question 5

How is valuation determined for a related-party share transfer in a private company?

Accepted Answer

Rule 11UA of the Income Tax Rules specifies the fair market value floor for shares of unlisted companies: Net Asset Value (NAV) method per Explanation (a) to Rule 11UA for the transferor; the transferee can use discounted cash flow (DCF) if receiving shares. If the actual consideration is below FMV, Section 56(2)(x) taxes the difference as income from other sources in the transferee's hands.

Share Transfer Buyback

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