Rishabh Private Limited is a closely held company. Its board of directors decided to issue 1000 shares face value of which is ₹ 100 per share, fair market value of which is ₹ 200 per share at a premium of ₹ 250 per share

In case the investors/subscribers are Resident Indian, then tax liability will arise on income i.e., issue price ₹ 350 (i.e. ₹ 100 face value plus ₹ 250 share premium) minus ₹ 200 (fair market price) = ₹ 150 per share. Deemed income u/s 56 will be ₹ 1,50,000 (1000 shares x ₹ 150 per share) and tax will be paid accordingly. In case the investors/subscribers is Non Resident Indian, then tax liability will arise as calculated above u/s 56 of the Income tax Act, 1961. But in case the investors/subscribers are venture capital undertaking then no tax liability will arise as they are exempted under Section 56 of the Income tax Act, 1961. In case the shares were issued at fair market value instead at face value or at premium, then no tax liability would have occurred.