The Yes Bank Limited Reconstruction Scheme, 2020 was a landmark event in India's banking sector, involving the reconstruction of Yes Bank through a government-backed scheme. The Income Tax Act, 2025, through Rule 58, provides specific exemptions for shares allotted under this scheme. Understanding these exemptions is essential for investors who received shares under the scheme.
The Background
Yes Bank Reconstruction Scheme, 2020
The Yes Bank Limited Reconstruction Scheme, 2020 was formulated by the Reserve Bank of India in consultation with the Central Government under Section 45 of the Banking Regulation Act, 1949. The scheme involved:
- Reconstruction of Yes Bank
- Infusion of capital by investors
- Allotment of shares to investors and investor banks at a specified price
The Statutory Framework
Section 92(2)(m) and Section 79
Section 92(2)(m) of the Income Tax Act, 2025 provides that where any person receives any sum of money or property without consideration or for inadequate consideration, the same may be chargeable to tax under the head "Income from other sources"【92†L0】. Section 79 provides special provisions for full value of consideration for transfer of share other than quoted share【79†L0】.
Rule 58: The Exemption
Rule 58 prescribes specific classes of persons and transactions exempt from Section 92(2)(m). Category 3 of Rule 58 provides an exemption for investors in the Yes Bank Reconstruction Scheme.
The Exemption
Class of Persons Covered
The exemption applies to:
- Investor: Any investor in the reconstructed bank
- Investor bank: Any bank that invested in the reconstructed bank
Nature of Asset Covered
The exemption applies to any movable property, being equity shares, of the reconstructed bank.
Conditions
The exemption applies where the said share has been allotted by the reconstructed bank under the scheme at a price specified in paragraph 3(3) of the Scheme.
Practical Implications
For Investors
Investors who received shares under the Yes Bank Reconstruction Scheme:
- Are exempt from the provisions of Section 92(2)(m)
- Do not need to pay tax on the receipt of shares as income from other sources
- The shares are not subject to the inadequate consideration provisions
For Tax Practitioners
Practitioners should:
- Verify that the shares were allotted under the Yes Bank Reconstruction Scheme
- Confirm that the price was as specified in paragraph 3(3) of the Scheme
- Ensure that the exemption is claimed correctly in the tax return
Definitions
Investor
"Investor" shall have the same meaning as assigned to it in paragraph 2(1)(b) of the Scheme【58†L0】.
Investor Bank
"Investor bank" shall have the same meaning as assigned to it in paragraph 2(1)(c) of the Scheme【58†L0】.
Reconstructed Bank
"Reconstructed bank" shall have the same meaning as assigned to it in paragraph 2(1)(d) of the Scheme【58†L0】.
Scheme
"Scheme" means Yes Bank Limited Reconstruction Scheme, 2020【58†L0】.
Expert Legal Guidance
Understanding the exemption for shares allotted under the Yes Bank Reconstruction Scheme is essential for investors and practitioners. Anuj Desai & Associates provides expert advisory services on Direct Tax Code compliance, helping investors navigate the exemption provisions and ensure proper tax treatment.