Updated: 10 November 2026 | Chapter IV - Capital gains

Section 79 Income Tax Act 2025: Is Fair Market Value Mandatory for Unquoted Share Transfers?

Selling unquoted company shares below their prescribed fair market value may trigger a deemed sale consideration for capital gains purposes. Section 79 explains when that substitution applies, which shares are covered and when prescribed exceptions may operate.

Key point: Section 79 of the Income-tax Act, 2025 corresponds to Section 50CA of the Income-tax Act, 1961. It applies to transfers of shares other than qualifying quoted shares where the actual consideration is lower than the prescribed fair market value. The 2025 Act applies from 1 April 2026, subject to transitional provisions.

What does Section 79 provide?

Section 79(1) provides that if consideration received or accruing on transfer of a capital asset consisting of a company share other than a quoted share is less than its fair market value (FMV), determined in the prescribed manner, that FMV is deemed to be the full value of consideration for the purposes of Section 72. The provision affects the seller's capital gains computation; it does not by itself prescribe a separate tax rate.

Section 79(2) permits non-application to prescribed classes of persons, subject to prescribed conditions. Section 79(3) defines a quoted share for this section.

When does the deemed consideration rule apply?

A capital asset comprising shares of a company is transferred.
The shares do not qualify as quoted shares under Section 79(3).
The actual sale consideration is below the FMV calculated under the applicable prescribed valuation rules.
No applicable prescribed exemption or exception excludes the transfer.

When these conditions are met, the prescribed FMV replaces the lower actual consideration in the seller's capital gains calculation. If actual consideration is equal to or higher than FMV, Section 79 does not require upward substitution.

Relevant statutory definitions and concepts

Quoted share - Section 79(3): A share quoted on a recognised stock exchange with regularity from time to time, where the quotation is based on current transactions made in the ordinary course of business. A mere isolated quotation should not automatically be treated as satisfying this definition.

Share other than a quoted share: A company share that does not satisfy the statutory quoted-share definition; commonly described as an unquoted share for purposes of this rule.

Fair market value: The value determined using the manner prescribed under the applicable Income-tax Rules. It is not necessarily the face value, book value or the price privately agreed between parties.

Full value of consideration: The amount used as the starting point for computing capital gains under Section 72. Under Section 79, prescribed FMV can replace the lower actual consideration.

Capital gains: Income arising from transfer of a capital asset, computed subject to the relevant charging, computation, exemption and rate provisions.

Practical example: Sale below fair market value

Assume an individual transfers unquoted shares for Rs. 8,00,000. The FMV under the prescribed valuation method is Rs. 12,00,000. The allowable acquisition cost is Rs. 5,00,000 and eligible transfer expenses are Rs. 20,000.

Particulars	Amount
Actual sale price	Rs. 8,00,000
Prescribed FMV	Rs. 12,00,000
Deemed full value of consideration under Section 79	Rs. 12,00,000
Less: eligible acquisition cost	Rs. 5,00,000
Less: eligible transfer expenses	Rs. 20,000
Illustrative capital gain	Rs. 6,80,000

Illustration assumes Section 79 applies and the stated costs are fully allowable. Actual treatment depends on the holding period, applicable computational provisions, prescribed valuation rules and facts.

Exceptions, valuation and practical compliance

Section 79(2) expressly recognises that certain prescribed classes of persons and transactions may be excluded, subject to conditions. Before applying the deeming provision, examine the rules and notifications applicable to the relevant tax year. Do not assume every below-FMV transfer is automatically covered without considering these exceptions.

Taxpayers should retain the share purchase and sale agreements, shareholding records, valuation workings, financial statements, transfer dates, consideration evidence and documents supporting any claimed exception. A separate recipient-side tax provision may also need consideration, depending on the circumstances; the seller's Section 79 treatment does not conclusively determine the buyer's tax position.

Important distinction: Section 78 concerns stamp duty value on certain immovable property transfers. Section 79 concerns FMV on transfers of company shares other than quoted shares. They address different assets and valuation mechanisms.

Relationship with Section 50CA of the Income-tax Act, 1961

The Income Tax Department's section-mapping navigator identifies Section 50CA of the 1961 Act as the corresponding earlier provision for Section 79 of the 2025 Act. Older decisions and guidance concerning Section 50CA may help interpret comparable wording, but their application must be assessed in light of the current statutory text, rules and relevant facts. The number Section 79 in the 1961 Act addressed a different subject: carry-forward of losses following changes in shareholding.

Frequently asked questions

Is an unquoted share sale below fair market value always taxed on FMV?

Section 79 generally substitutes prescribed FMV when it exceeds actual consideration, but the prescribed exceptions and conditions under Section 79(2) must first be checked.

Does Section 79 apply to listed shares?

It does not apply to a share that meets the specific definition of a quoted share in Section 79(3). Merely being associated with a listed company is not a substitute for examining that definition.

Can the agreed selling price be used if it exceeds FMV?

Yes, Section 79 does not replace a higher actual consideration with a lower FMV.

Is the deemed gain necessarily short-term?

No. Section 79 determines the consideration used in computation. The nature of the gain depends on the relevant holding-period and capital gains provisions.

What was the corresponding provision in the 1961 Act?

Section 50CA of the Income-tax Act, 1961.

Official statutory references

For the authoritative legal position, consult the enacted Income-tax Act, 2025, applicable amendments, the Income-tax Rules and notifications in force for the relevant tax year.

Income Tax Department - 2025 Act Official Section Mapping Income Tax e-Filing Portal

This article is a general statutory explanation, not a substitute for transaction-specific tax advice.