Sub-section (1) is a deeming rule for capital gains. Where the consideration received or accruing from the transfer of a capital asset being a share of a company other than a quoted share is less than the fair market value of that share, determined in the manner as may be prescribed, the value so determined is deemed to be the full value of consideration received or accruing as a result of the transfer for the purposes of section 72.
Sub-section (2) disapplies sub-section (1) to consideration received or accruing on transfer by such class of persons and subject to such conditions as may be prescribed. Sub-section (3) defines "quoted share" as a share quoted on any recognised stock exchange with regularity from time to time, where the quotation is based on current transactions made in the ordinary course of business.
Why it is there
Unquoted shares have no market price to test a sale against, so a transfer at an understated price is difficult to challenge on the facts alone. The section removes the argument by substituting a prescribed fair market value for the stated consideration whenever the stated consideration is the lower of the two, and it defines "quoted share" tightly so that a share which is nominally listed but not actually traded with regularity falls inside the rule rather than outside it.
Who it applies to
A transferor of a capital asset being a share of a company other than a quoted share
An assessee computing capital gains under section 72 on such a transfer
A class of persons prescribed for exclusion under sub-section (2)
The figures, and what each one turns on
Read the condition in the same row. A figure quoted without it is a wrong answer with a citation attached.
What
Figure
The condition on it
Where
Deemed full value of consideration
The fair market value of the share, determined in the prescribed manner
Only where the consideration received or accruing is less than that fair market value
Sub-section (1)
What this means in practice
The rule is one-directional: it bites only where the consideration is less than the prescribed fair market value, and it never reduces a consideration that exceeds it. What is substituted is not evidence of value but the full value of consideration itself for section 72, so the computation proceeds on a figure the transferor never received. Whether a share is "quoted" is not settled by the company being listed — sub-section (3) requires the share to be quoted with regularity from time to time on quotations based on current transactions in the ordinary course of business, so a thinly or nominally traded listed share can be an unquoted share for this section. The exclusions in sub-section (2) are not self-executing; they operate only for the class of persons and on the conditions actually prescribed.
An example
Illustrative only, and invented for this page. The figures are chosen to show the rule biting, not taken from any real matter.
A shareholder sells shares in an unlisted private company for Rs 40 lakh at a time when their fair market value determined in the prescribed manner is Rs 1 crore. For section 72 the full value of consideration is taken as Rs 1 crore, so the capital gain is computed by deducting cost from Rs 1 crore, not from the Rs 40 lakh actually received. Had the shares been sold for Rs 1.2 crore, sub-section (1) would not have applied at all and the actual consideration would stand.
Where you meet this section
In a capital gains computation on a private share sale, and in a scrutiny notice or assessment order that replaces the price in the share transfer form with a prescribed fair market value. It is also the provision behind valuation reports called for when unlisted shares change hands.
The words themselves
the value so determined shall be deemed to be the full value of consideration received or accruing as a result of such transfer for the purposes of section 72
Section 79(1), Income-tax Act, 2025.
"quoted share" means the share quoted on any recognised stock exchange with regularity from time to time, where the quotation of such share is based on current transaction made in the ordinary course of business
Section 79(3), Income-tax Act, 2025.
What people get wrong
Assuming a share is quoted because the company is listed. Sub-section (3) requires quotation on a recognised stock exchange with regularity, based on current transactions in the ordinary course of business.
Applying the section where the price exceeds fair market value. Sub-section (1) operates only where the consideration is less than the fair market value.
Treating the prescribed fair market value as one piece of valuation evidence to be weighed. Sub-section (1) deems it to be the full value of consideration for section 72.
Relying on the sub-section (2) carve-out without a prescription. It applies only to such class of persons and subject to such conditions as may be prescribed.
Using a valuation arrived at on some other basis. The fair market value must be determined in the manner as may be prescribed.
What this replaced
The correspondence is the Income Tax Department’s own, from its comparison utility for the 1961 and 2025 Acts. A renumbering is the easy half; whether the words changed is the half that decides cases.
50CA - Special provision for full value of consideration for transfer of share other than quoted share
Rules of the Income-tax Rules, 2026 that work section 79. Where the rule’s own heading names the section we say so; the rest are marked on reading the rule, which is our derivation and not the department’s. A rule that serves the section silently and that we have missed will not appear here.
Rule 56 — Meaning of expressions used in determination of fair market value — on reading the rule
Rule 58 — Prescribed class of persons for the purpose of section 92(3)(i) and section 79
A notification is made under a power the Act gives and, within that power, is law. These too were made under the 1961 Act and are placed here by the department’s concordance.
Read this before you rely on it. Every decision below was decided under the Income-tax Act, 1961. It appears here because it is tagged to a 1961 provision that the department’s own mapping carries to section 79. That is an inference we have drawn, not a holding on the new section: where the words changed in the move, the reasoning may not survive. Treat this as the place to start looking, not as authority on the 2025 Act.
DCIT v Ashish Jugalkishor BhalaITATCuts both waystagged s.50CA Can a discount for lack of marketability be applied to the rule 11UA value of unquoted shares in a section 50CA or section 56(2)(x) case, when the…
JCIT v Manish VijITATHelps taxpayertagged s.50CA I sold the same company's unquoted shares twice in one year at very different prices. Can the AO apply s.50CA using the later valuation?
Rajasehar Buvaneswari v ITOITATCuts both waystagged s.50CA The Assessing Officer has applied rule 11UA to my unquoted shares and arrived at a figure the shares could never have fetched. Can a contemporaneous…
What this page does not tell you. It does not reproduce the section. Everything above was written from the section’s own text as the Income Tax Department publishes it — the text is here, and nothing here is advice on your facts. Where a figure matters, read the sub-section it comes from.