Taxability - sale of share in a private limited co

This query is : Resolved

Querist : Anonymous

Querist : Anonymous (Querist)

26 June 2014 Hi,
I have a private limited co with three other directors. Now I want to quit from this business, I want to know how can i transfer the shares - option1 - Buy back by the co and share reduction, option2 - Selling my shares to other director. I want to know the price at which i can sell and the taxability in both the option in the hands of buyer and the seller.
Thanks

Nikhil Kaushik

Nikhil Kaushik (Expert)
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26 June 2014 you will have to sell at FMV arrived at using Formula prescribed under Rule 11U/11UA

Querist : Anonymous

Querist : Anonymous (Querist)

26 June 2014 Hi Nikhil,
I want to understand what if company buy backs the share will it have to reduce the share capital and taxability in the hands of co and me

2nd option
if i sell to other share holders, then taxability to me and other share holder

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Nikhil Kaushik

Nikhil Kaushik (Expert)
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26 June 2014 In both the cases, you will have to compute the FMV under the above mentioned rules and sell at that price only to avoid section 56(2)(viia).

Further, selling to other shareholders is easier than buyback option.

So my advice would be to sell to other shareholders at FMV only.