Section 79 of the Income-tax Act, 2025 — Full Value of Consideration for Transfer of Unquoted Shares (FMV Rule)

In plain language

What Section 79 is about

Section 79 of the Income-tax Act, 2025 is an anti-abuse provision that stops people from dodging capital-gains tax by selling shares of a private/unlisted company for far less than what they are actually worth. In plain words: if you transfer a share other than a quoted (listed) share for a price that is lower than its fair market value (FMV), the tax law simply ignores your low sale price and treats the FMV as your "full value of consideration" for computing capital gains under Section 72.

This is the 2025 Act's re-enactment of the old Section 50CA of the Income-tax Act, 1961. The policy is unchanged — only the section number and the surrounding drafting are new. It became effective from 1 April 2026.

Who it applies to

• The seller/transferor of shares — this section works on the person giving up the shares, not the buyer.
• Applies to all categories of taxpayers — individuals, HUFs, firms, LLPs, companies, trusts — anyone earning capital gains on transfer of unquoted shares.
• It covers equity shares and preference shares of a company, so long as the share is not a "quoted share".

Key conditions to trigger Section 79

• The asset must be a share of a company — not debentures, units of a mutual fund, or a partnership interest.
• The share must be unquoted — i.e., not regularly quoted on a recognised stock exchange based on current, genuine transactions.
• The actual consideration is below FMV — the sale price is less than the FMV determined under the prescribed rules (Rule 57 of the Income-tax Rules, 2026, the successor to Rule 11UA).

If all three are met, FMV replaces your sale price. If your sale price is equal to or above FMV, Section 79 does nothing — your actual price stands.

What is a "quoted share"

Sub-section (3) defines a quoted share as a share that is quoted on any recognised stock exchange with regularity, where the quotation is based on current transactions made in the ordinary course of business. Anything failing this test is an unquoted share and falls within Section 79.

Exemptions (sub-section 2)

Sub-section (2) empowers the Government to carve out certain classes of persons and conditions by rules — mirroring the exemptions that existed under Section 50CA (for example, transfers by/to entities under an approved resolution plan, or specified government-backed transactions). If your transfer falls in a notified exempt class, the FMV substitution does not apply.

How it interacts with other sections

• Section 72 (computation of capital gains): Section 79 only fixes the sale side of the formula; the actual gain (FMV minus cost of acquisition and expenses) is still computed under Section 72 (the 2025 equivalent of Section 48).
• Recipient-side tax (Section 92, the 2025 successor to Section 56(2)(x)): The buyer who receives unquoted shares below FMV can be taxed on the shortfall as "income from other sources". So the same undervaluation can be taxed twice — once in the seller's hands via Section 79, and once in the buyer's hands via Section 92. This is deliberate.
• Holding period rules decide whether the gain is short-term or long-term; Section 79 does not change that classification, only the sale value.

Practical implications

• Always get a valuation report (Merchant Banker / prescribed method) before transferring unquoted shares, especially in gifts, family restructurings, buy-backs and start-up exits.
• Selling shares at book value or ₹10 face value to a relative or another company is a red flag — the department will compute tax on FMV.
• Because both seller and buyer can be taxed, document the commercial rationale for any below-FMV price.