Transfer of Shares

A transfer of shares looks deceptively simple — a buyer, a seller, a price, and a form. By 2026 it is anything but. The Companies Act 2013 (Section 56 read with Form SH-4), the Indian Stamp Act 0.015% uniform rate on share transfer (post-2020 amendment), the compulsory dematerialisation of unlisted shares effective 1 October 2024, the Section 56(2)(x) of the Income-tax Act fair-market-value check using Rule 11UA, the Section 50CA / 50D capital-gains lens, and — for any transfer where buyer or seller is a non-resident — the FEMA 20(R) regime with Form FC-TRS filed through the AD bank — all converge on the single piece of paper that moves the share.

Get any of them wrong and the consequences stack up: SH-4 rejected, register of members not updated, transfer not recognised by the company, FMV deemed-income added to the buyer under Section 56(2)(x), capital gains taxed on FMV not consideration under Section 50CA / 50D, FEMA contravention with compounding penalty, and DD failure at the next funding round. The transfer that should have closed in a week then drags through corrections for months.

We execute share transfers end-to-end — SH-4, board approval, stamp duty, DEMAT processing, FMV documentation, FC-TRS for foreign legs, register of members, share certificate cancellation and reissue, and updated cap table — for resident-to-resident, resident-to-NRI, and cross-border transfers in listed and unlisted Indian companies.

The Statutory Framework

• Section 56 + Form SH-4:: Every transfer of shares in an unlisted company is executed on Form SH-4, signed by transferor and transferee, with stamp duty affixed. The instrument is delivered to the company within 60 days of execution; the company places it before the Board, which approves the transfer (Section 56(1)).

• DEMAT Mandatory From 1 October 2024:: MCA notification mandates compulsory dematerialisation of securities of unlisted public companies and (subsequently) private companies. From 1 October 2024 onwards, transfers in physical mode are not recognised — both transferor and transferee must hold demat accounts; transfer happens via depository (NSDL / CDSL) instruction.

• Indian Stamp Act 0.015%:: Post the 2020 amendment to the Indian Stamp Act, share transfer attracts a uniform 0.015% stamp duty on consideration (or value, whichever higher), payable through the depository for demat transfers — replacing the State-by-State 0.25% physical-share regime.

• Section 56(2)(x) IT Act + Rule 11UA:: If the transfer consideration is below the Rule 11UA FMV (with a 10% safe-harbour band), the difference is treated as deemed income in the buyer's hands. A merchant-banker / CA valuation under Rule 11UA(2) is the standard guard.

• Section 50CA / 50D:: For the seller, capital gains are computed on the higher of consideration or FMV under Rule 11UA — anti-abuse rule preventing artificially low transfer prices.

• FEMA + Form FC-TRS:: Where buyer or seller is a non-resident, the transfer is governed by FEMA 20(R), priced under the RBI pricing guidelines, and reported on Form FC-TRS through the AD bank within 60 days of transfer.

The Execution Sequence

Step A: SH-4 Drafted, Stamped, Signed. Consideration, valuation report (Rule 11UA), board pre-clearance.

Step B: DEMAT Instruction. DIS submitted at transferor's DP; transfer executed; both DPs confirm.

Step C: Board Approval. Board resolution approving transfer; SH-4 lodged with company.

Step D: Register of Members. Updated; share certificate cancelled / reissued (where physical residue exists pre-DEMAT cutover).

Step E: FC-TRS (If Foreign Leg). Filed via AD bank within 60 days with FIRC, KYC, valuation report.

Step F: Tax & Cap Table. Capital gains computed, TDS where applicable (Section 195 for non-resident), cap table updated and version-locked.