Taxation on Investments in Companies

Government has changed policies on investments in companies. If anyone is going to invest in a company, and if they pay more price than the fair market price for the shares, then the excess amount is taxed at 30%.

A person starts a company with Rs.1 crore (With 10 lakh shares, with face value of Rs.10 per each share). After one year, when the company has not yet made any significant progress, he sells 1 lakh of his shares for Rs.10 crore. Overnight, his wealth increases by Rs.9 crore. By the existing rules, the company does not pay any tax on that. Government is planning to impose the tax on the excess amount to the fair market price.

But, why would anyone pay more than the fair market price? Why would anybody buy for Rs.10 crore, when it's actual worth is only Rs.10 lakh?

They would buy, if that person's father is a Chief Minister, and they can get enough favors for that. This is the exact same charge on Y.S.Jagan Mohan Reddy, S/O Y.S.Raja Sekhara Reddy, Ex-C.M. of Andhra Pradesh.

Pranab Mukherjee and other politicians may say, it is a very good policy to reduce black money. But, this is a worst policy for Indian business.

For public companies, the fair market price is same as the stock price for the company. For private companies?

The assessing officer of the government decides the fair market price in this case, and there is no need to explain the problems and the corruption that happens because of that. For land in any developed city/town in India, there is a huge variation between the government price and market price. When there is huge difference in the value calculation even in the physical assets, what about the value calculation of an idea, prototype, software product, patent, or any other intellectual property?

To stop handful people like Y.S.Jagan, Indian government is destroying the entire entrepreneurship.