RBI monetary policy suggests dropping pricing requirements

In an unexpected move, the Reserve Bank of India (RBI), through its first bi-monthly Monetary Policy Statement for the financial year 2014–15, has announced that it will ‘withdraw all the existing guidelines relating to valuation in case of any acquisition/sale of shares’. The actual guidelines are awaited.

It will be interesting to see how these guidelines are eventually implemented. Currently, valuation requirements are prescribed under various statutes and regulations: (i) the Foreign Exchange Management Act 1999 by the RBI for the issuance and transfer of securities for certain foreign investors; (ii) guidelines issued by the Securities and Exchange Board of India for listed public companies; (iii) the newly notified Companies Act 2013 and rules made thereunder for preferential allotment of shares; and (iv) transfer pricing requirements for issuance/transfer of shares between associated enterprises and under the Income Tax Act 1961 and rules made thereunder, where difference between fair market value and the transaction value could be taxed in the hands of the recipient of the shares, depending on the facts and circumstances…

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