The distinction between quoted and unquoted shares is fundamental to fair market value determination under the Income Tax Act, 2025. Rule 57 establishes fundamentally different valuation methodologies for each category, reflecting the different challenges in establishing value for publicly traded versus privately held securities.
Definitional Framework
Quoted Shares
Quoted shares are shares quoted on any recognised stock exchange with regularity from time to time, where the quotations are based on current transactions made in the ordinary course of business【56†L0】. The key elements are:
- Listing on a recognised stock exchange
- Regularity of quotations
- Current transactions in the ordinary course of business
Unquoted Shares
Unquoted shares are shares that do not meet the definition of quoted shares. This includes shares that are:
- Listed but not regularly traded
- Listed but quotations are not based on current transactions
- Not listed on any recognised stock exchange
Valuation of Quoted Shares
Exchange-Traded Transactions
Where a transaction is carried out through a recognised stock exchange, the FMV is the transaction value as recorded in that exchange. This represents the most reliable evidence of value, as it reflects an actual arm's length transaction in a regulated market.
Off-Market Transactions
Where a transaction is carried out other than through a recognised stock exchange, the FMV is:
- The lowest price of such shares and securities quoted on any recognised stock exchange on the valuation date
- If there is no trading on the valuation date, the lowest price on any recognised stock exchange on a date immediately preceding the valuation date when such shares and securities were traded
This "lowest price" approach ensures that off-market transactions are not undervalued.
Valuation of Unquoted Equity Shares
The Formula Approach
Unquoted equity shares are valued using a prescribed formula:
FMV = (A + B + C + D − L) × (PV ÷ PE)
This net asset value approach adjusts book values to fair market values for specified asset classes.
Key Differences from Quoted Shares
| Aspect | Quoted Shares | Unquoted Shares |
|---|---|---|
| Primary Method | Market price | Formula-based |
| Basis of Valuation | Actual transactions | Net asset value |
| Frequency of Valuation | Based on trading | Based on balance sheet |
| Professional Input | Not required | May require registered valuer/merchant banker |
Valuation of Unquoted Shares (Other than Equity)
Unquoted shares and securities other than equity shares are valued at the price they would fetch in the open market, determined by a merchant banker or an accountant. This applies to:
- Preference shares
- Debentures
- Bonds
- Other non-equity instruments
Practical Implications
For Quoted Shares
- Exchange-Traded: Transaction value is conclusive evidence of FMV
- Off-Market: Must use the lowest quoted price, which may exceed the actual consideration
- Multiple Exchanges: Where listed on multiple exchanges, the lowest price among all exchanges applies
For Unquoted Shares
- Equity Shares: Formula-based valuation with adjustments for specified assets
- Other Securities: Merchant banker or accountant valuation
- Regular Updates: Balance sheet must be current as on the valuation date
Common Compliance Issues
Quoted Shares
- Stale Prices: Using prices from a date other than the valuation date
- Wrong Exchange: Using the wrong exchange when listed on multiple exchanges
- Off-Market Undervaluation: Failing to apply the lowest quoted price
Unquoted Shares
- Incorrect Liability Exclusion: Failing to properly exclude reserves and surplus
- Stale Balance Sheet: Using balance sheet from a different date
- Missing Adjustments: Failing to adjust for jewellery, artistic works, shares, securities, and immovable property
Expert Legal Guidance
Understanding the differences in FMV determination for quoted versus unquoted shares is essential for tax compliance in share transactions. Anuj Desai & Associates provides expert advisory services on Direct Tax Code compliance, helping taxpayers navigate the valuation requirements and avoid disputes with tax authorities.