Chapter IV - Computation of Total Income
Section 79
Section 79: special provision for full value of consideration for transfer of share other than quoted share
Section 79 targets under-valued sales of unquoted (unlisted or not regularly traded) shares. If a company's shares - other than a "quoted share" - are sold for less than their prescribed fair market value, that fair market value is treated as the sale consideration for capital gains purposes instead of the actual price.
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This article is for general information. Refer to the Income-tax Act, 2025 as amended by the Finance Act, 2026 and the Taxation and Other Laws (Amendment) Act, 2026 for the official provisions. If you need professional advice for your situation, contact Bizeneed.
Statutory text
Bare law
(1) If the consideration received or accruing from the transfer of a capital asset, being share of a company other than a quoted share, is less than the fair market value of such share determined in the manner as may be prescribed, the value so determined shall be deemed to be the full value of consideration received or accruing as a result of such transfer for the purposes of section 72.
(2) The provisions of sub-section (1) shall not apply to any consideration received or accruing as a result of transfer by such class of persons and subject to such conditions, as may be prescribed.
(3) For the purposes of this section, the expression “quoted share” means the share quoted on any recognised stock exchange with regularity from time to time, where the quotation of such share is based on current transaction made in the ordinary course of business.
Introduction
A company share that is not a quoted share can have a deemed sale value for capital-gains purposes. Section 79 compares stated consideration with prescribed fair market value and retains a prescribed-person exception.
Key takeaways
Unquoted share transfer
If consideration for a share other than a quoted share is below its prescribed fair market value, that fair market value is deemed the full consideration for Section 72.
Prescribed exceptions
The deeming rule does not apply to transfers by prescribed classes of persons under prescribed conditions.
Quoted share definition
A quoted share is one regularly quoted on a recognised stock exchange on the basis of current ordinary-course transactions.
The core rule
Section 79(1) deems the fair market value of a share (determined in the prescribed manner) to be the full value of consideration for Section 72, where the actual consideration received or accruing from transfer of that share is less than its fair market value - and the share is not a "quoted share."
Exceptions
Section 79(2) provides that this rule does not apply to consideration received from transfers by prescribed classes of persons, or subject to prescribed conditions.
What counts as a "quoted share"
Section 79(3) defines "quoted share" as a share quoted on a recognised stock exchange with regularity, where the quotation is based on actual transactions made in the ordinary course of business.
Step-by-step flow for applying Section 79
- 1
Is the asset transferred a share of a company?
- No: Section 79 does not apply.
- Yes: Go to the next step.
- 2
Is it a 'quoted share'?
A share quoted on a recognised stock exchange with regularity, where the quotation is based on current transactions made in the ordinary course of business.
- Yes: Section 79 does not apply.
- No: Go to the next step.
- 3
Is the transferor within a prescribed class of persons meeting prescribed conditions?
- Yes: Section 79(1) does not apply (Section 79(2)).
- No: Go to the next step.
- 4
Is the consideration less than the fair market value determined in the prescribed manner?
- Yes: The fair market value is the full value of consideration for Section 72.
- No: Use the actual consideration.
Practical checklist
Do
- Document the share's quoted or unquoted status and the sale consideration.
- Compute fair market value under the prescribed method and check any prescribed transferor exception before substitution.
Avoid
- Do not use an informal estimate of fair market value in place of the prescribed method.
- Do not treat an irregular quote as sufficient without the statutory quoted-share definition.
Illustrative example
Worked example: unquoted shares sold below fair market value
Hypothetical facts (illustration only, not a real taxpayer): Mr. Bose sells shares of a private company, which are not quoted on any stock exchange, for ₹20,00,000. His cost of acquisition is ₹12,00,000. Assume the fair market value determined in the prescribed manner is ₹32,00,000 and he is not in any prescribed excluded class.
Compare
Consideration ₹20,00,000 is less than the fair market value of ₹32,00,000.
Deemed full value
₹32,00,000 is deemed to be the full value of consideration for Section 72.
Capital gain
₹32,00,000 − ₹12,00,000 = ₹20,00,000, instead of ₹8,00,000 on the actual price (ignoring transfer expenses).
Outcome
- Capital gains of ₹20,00,000 are computed on the deemed value.
- The fair market value method and any excluded classes are left to the rules, so check the prescribed rules before relying on a figure.
Glossary
- Quoted share
- A share regularly quoted on a recognised stock exchange based on current ordinary-course transactions.
- Deemed consideration
- The fair market value substituted for a lower stated transfer price under Section 79.
Frequently asked questions
Does Section 79 apply to shares listed on a stock exchange?
No - it specifically excludes "quoted shares," meaning shares regularly quoted on a recognised stock exchange based on genuine ordinary-course transactions, per Section 79(3).
What happens if I sell unquoted shares below fair market value?
The fair market value, determined in the prescribed manner, is deemed to be the full value of consideration for capital gains purposes under Section 79(1), unless an exception under Section 79(2) applies.
Need help applying this provision to your situation?
Get expert help on unquoted share transfer valuationLast updated 9 October 2026