• Transfer of a capital asset to a close relative of the Income tax act: When a capital asset is transferred to a close relative at a price below the market value, the full value of consideration is deemed to be the market value of the asset on the date of transfer. This is to prevent tax avoidance by taxpayers selling assets to close relatives at undervalued prices.
• Transfer of a capital asset under a distressed sale of the: When a capital asset is transferred under a distressed sale, such as in the case of bankruptcy or liquidation, the full value of consideration is deemed to be the market value of the asset on the date of transfer, less any discount that the seller had to give in order to sell the asset. This is to ensure that the seller is not taxed on a capital gain that they have not actually realized.
• Transfer of a capital asset under a compulsory acquisition of the Income tax act: When a capital asset is compulsorily acquired by the government, such as in the case of eminent domain, the full value of consideration is deemed to be the compensation paid by the government. This is to ensure that the seller is not taxed on a capital gain that they have not actually realized.
• Transfer of a capital asset under a scheme of amalgamation or demerger of the Income tax act: When a capital asset is transferred under a scheme of amalgamation or demerger, the full value of consideration is deemed to be the value of the shares or other assets received by the transferor in exchange for the transferred asset. This is to ensure that the transferor is not taxed on a capital gain that they have not actually realized.

In addition to the above cases, the full value of consideration may also be determined on a notional basis in certain other cases, such as when the asset is transferred to a charity or when the asset is transferred to a foreign resident.

It is important to note that the determination of the full value of consideration on a notional basis is subject to certain terms and conditions. For example, in the case of a transfer to a close relative, the full value of consideration will be deemed to be the market value of the asset only if the transfer is made at a price below the market value.

• Transfer of a capital asset to a relative at less than fair market value of the Income tax act : If a taxpayer transfers a capital asset to a relative at less than fair market value, the full value of consideration is deemed to be the fair market value of the asset on the date of transfer.
• Buyback of shares by a company of the Income tax act: If a company buys back its own shares, the full value of consideration is deemed to be the buyback price of the shares.
• Transfer of a capital asset in consideration for services rendered of the Income tax act: taxpayer transfers a capital asset in consideration for services rendered, the full value of consideration is deemed to be the fair market value of the services rendered.
• Transfer of a capital asset in consideration for a goodwill payment of the Income tax act: If a taxpayer transfers a capital asset in consideration for a goodwill payment, the full value of consideration is deemed to be the amount of the goodwill payment.

The full value of consideration is also determined on a notional basis in certain other cases, such as where the asset is transferred under a distressed sale or where the asset is transferred to a charitable organization.

The determination of the full value of consideration on a notional basis is important for capital gains tax purposes, as it is used to calculate the amount of the capital gain. The capital gain is calculated by subtracting the cost of acquisition of the asset from the full value of consideration.

Examples

• A taxpayer sells a house to their child for $500,000, when the fair market value of the house is $700,000. The full value of consideration for capital gains tax purposes is deemed to be $700,000.
• A company buys back its own shares for $10 per share, when the fair market value of the shares is $12 per share. The full value of consideration for capital gains tax purposes is deemed to be $12 per share.
• A taxpayer transfers a capital asset to a charity in exchange for a receipt for the value of the asset. The full value of consideration for capital gains tax purposes is deemed to be the value of the asset as stated on the receipt.
• Money or other asset received under any insurance from an insurer due to damage or destruction of a capital asset of the Income tax act: In this case, the full value of consideration is deemed to be the value of the money or other asset received under the insurance polic
• Conversion of capital asset into stock-in-trade of the Income tax act: In  this case, the full value of consideration is deemed to be the fair market value of the capital asset on the date of conversion.
• Transfer of capital asset by a partner or member to firm or AOP/BOI, as the case may be, as his capital contribution of the Income tax act: In this case, the full value of consideration is deemed to be the amount recorded in the books of accounts of the firm or AOP/BOI as the value of the capital asset received as capital contribution.
• Distribution of capital asset by Firm or AOP/BOI to its partners or members, as the case may be, on its dissolution: In this case, the full value of consideration is deemed to be the fair market value of the capital asset on the date of dissolution.
• Money or other assets received by share-holders at the time of liquidation of the company of the Income tax act: In this case, the full value of consideration is deemed to be the amount received by the shareholders as their share in the liquidation proceeds of the company.
• Buy-back of shares and other specified securities by a company of the Income tax act: In this case, the full value of consideration is deemed to be the buy-back price paid by the company

Case laws

• IT v. D.P.F. Estates (P) Ltd. (2004) 266 ITR 660 (SC): In this case, the Supreme Court held that where the full value of consideration is not ascertainable, it can be determined on a notional basis. The court also held that the fair market value of the asset on the date of transfer is the best method for determining the notional full value of consideration.
• ACIT v. M/s. K.N.S. Sugar Mills Co. Ltd. (2014) 366 ITR 415 (ITAT): In this case, the Income Tax Appellate Tribunal (ITAT) held that where the full value of consideration is not disclosed in the sale deed, the fair market value of the asset on the date of transfer can be taken as the notional full value of consideration.
• ACIT v. M/s. Shree Ram Steel Industries (2018) 78 ITR (Trib) 373 (ITAT): In this case, the ITAT held that where the full value of consideration is not disclosed in the sale deed and the fair market value of the asset on the date of transfer cannot be determined, the stamp duty value of the asset can be taken as the notional full value of consideration.
• Section 50CA of the Income tax act: This section provides that the full value of consideration for the transfer of shares of a company (other than a quoted share) shall be the fair market value of the shares on the date of transfer, determined in accordance with the rules prescribed in the Income Tax Rules. of consideration for the transfer of a capital asset by way of slump sale shall be the fair market value of the capital assets transferred, determined in accordance with the rules prescribed in the Income Tax Rules

FAQ

Q: When is the full value of consideration determined on a notional basis under the Income Tax Act?

A: The full value of consideration is determined on a notional basis in the following cases under Income tax act:

• Where the consideration received or accruing as a a capital asset is not ascertainable or cannot be determined. For example, if a capital asset is transferred to a close relative for a nominal consideration, the full value of consideration will be determined on a notional basis.
• Where the consideration received or accruing as a result of the transfer of a capital asset is less than the stamp duty value of the asset. Under Income tax act For example, if a property is transferred for a sale price of Rs.1 crore but the stamp duty value of the property is Rs.1.2 crores, the full value of consideration will be taken as Rs.1.2 crores.
• Where the consideration received or accruing as a result of the transfer of a capital asset is less than the fair market value of the asset under Income tax act .For example, if a property is transferred under a distressed sale for a sale price of Rs.1 crore but the fair market value of the property is Rs.1.2 crores, the full value of consideration will be taken as Rs.1.2 crores.

Q: How is the full value of consideration determined on a notional basis of the Income tax act?

A: The full value of consideration is determined on a notional basis by the Income Tax Department based on the facts and circumstances of each case. The Department may consider factors such as the stamp duty value of the asset, the fair market value of the asset, and the comparable sale prices of similar assets.

Q: What are the implications of determining the full value of consideration on a notional basis of the Income tax act?

A: Determining the full value of consideration on a notional basis can have a significant impact on the capital gains tax liability of the transferor. If the full value of consideration is determined on a notional basis, the capital gain will be higher, which will lead to a higher tax liability