Reserve Bank of India Revises Pricing Guidelines for Transfer of Shares

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May 10 – The Reserve Bank of India has revised pricing guidelines for the transfer of equity instruments from a resident to a non-resident and vice versa in a notification last month.

Effective May 4, Foreign Exchange Management Act, 1999 (FEMA) 205/2010-RB will bring about the following changes:

  • In case the shares are listed, the price of the shares must not be less than the price at which a preferential allotment of shares can be made under the Securities Exchange Board of India (SEBI) Guidelines, as applicable, provided the same is determined for such duration as specified therein, preceding the date of purchase or sale of the shares
  • In case the shares are unlisted, the price must not be less than the fair value to be determined by a SEBI registered Category – I Merchant Banker or a CA as per the “discounted free cash flow method”

The price per share must be verified by a chartered accountant or a SEBI registered Category – I Merchant Banker. Moreover following the new amendment, the price of shares transferred by way of sale, by nonresident to resident shall not be more than:

  • The price at which a preferential allotment of shares can be made under the SEBI Guidelines, as applicable, provided that the same is determined for such duration as specified therein, preceding the date of purchase or sale of the shares, in case the shares are listed; or
  • The fair value to be determined by a SEBI registered Category – I Merchant Banker or a CA as per the “discounted free cash flow method,” in case the shares are unlisted.

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