Valuation of Sweat Equity Shares - Only Merchant Banker Could Value even for UNLISTED companies

Under the Income Tax Act, a special provision exists with regard to the valuing of benefit to an employee who is recipient of SES. Sub-clause (vi) of clause (2) of Section 17 of the Income Tax Act, 1961 provides that SES is a “Perquisite”. The value of SES shall be the ‘Fair Market Value’ determined in accordance with the method prescribed under the Income Tax Rules, 1962. Rule 3 of those Rules contains the method of determination of ‘Fair Market Value’. Separate methods have been given for Listed Companies and Unlisted Companies. 


It would be interesting to note that even in respect of Unlisted Companies, ‘Fair Market Value’ of SES should be determined only by Category 1 Merchant Banker.