The Central Board of Direct Taxes (CBDT) has made an important amendment to Income Tax Rule 11UAC, resulting in significant changes to the applicability of Section 56(2)(x) of the Income-tax Act, 1961. This amendment, outlined in Notification 35/2023, comes into effect from April 1, 2023, for the Assessment Years 2023-24 and onwards.
CBDT Income Tax Notification 35/2023 dated 31/05/2023: IT Rule 11UAC further Amended – Strategic Disinvestment Exclusion from Section 56(2)(x)
Expanded Applicability of Amended IT Rule 11UAC
The amended IT Rule 11UAC now applies to all circumstances involving the purchase of equity in a company. Previously, this rule was limited to the acquisition of shares in public companies. With the recent amendment, the scope of applicability has been expanded, providing relief to buyers of equity from tax liability under section 56(2)(x). This exemption applies when the shares are purchased at a price lower than their fair market value (FMV) to facilitate strategic disinvestment of public sector enterprises.
Substitution of Clause (4) of Income Tax Rule 11UAC
One of the key changes brought about by CBDT is the substitution of clause (4) of Income Tax Rule 11UAC. This clause pertains to movable property, specifically equity shares of a public sector company or a company received through strategic disinvestment from a public sector company, the Central Government or any State Government. The substitution introduces a wider application of the rule, aligning it with the expanded scope of non-applicability mentioned earlier.
In conclusion, the recent amendment to Income Tax Rule 11UAC by CBDT has expanded the scope of non-applicability of Section 56(2)(x) for strategic disinvestments. The amended rule now applies to all instances of equity purchase and exempts buyers from tax liability if the shares are acquired below their fair market value to facilitate the strategic disinvestment of public sector enterprises. This amendment brings about crucial changes to the Income-tax Act, 1961, and is applicable from April 1, 2023, for the Assessment Year 2023-24 and onwards.